What is the difference between a Form W-2 and a Form 1099-MISC?
Both of these forms are called information returns. The Form W-2 is used
by employers to report wages, tips and other compensation paid to an employee.
The form also reports the employee's income tax and Social Security taxes
withheld and any advanced earned income credit payments. The Form W-2 is provided
by the employer to the employee and the Social Security Administration. A
Form 1099-MISC is used to report payments made in the course of a trade or
business to another person or business who is not an employee. The form is
required among other things, when payments of $10 or more in gross royalties
or $600 or more in rents or compensation are paid. The form is provided by
the payor to the IRS and the person or business that received the payment.
How do you determine if a person is an employee or an independent
The determination is complex, but is essentially made by examining the
right to control how, when, and where the person performs services. It is
not based on how the person is paid, how often the person is paid, nor whether
the person works part-time or full-time. There are three basic areas which
determine employment status:
financial control and
relationship of the parties
For more information on employer-employee relationships, refer to Chapter
2 of Publication 15, Circular E, Employer's Tax Guide and
Chapter 2 of Publication 15-A (PDF), Employer's
Supplemental Tax Guide. If you would like the IRS to determine whether
services are performed as an employee or independent contractor, you may submit Form SS-8 (PDF), Determination of Worker Status for Purposes
of Federal Employment Taxes and Income Tax Withholding.
Unless you think you were an employee, you should report your nonemployee
compensation on Form 1040, Schedule C (PDF), Profit
or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit From Business. You also need
to complete Form 1040, Schedule SE (PDF), Self
Employment Tax, and pay self employment tax on your net earnings from
self employment, if you had net earnings from self employment of $400 or more.
This is the method by which self employed persons pay into the social security
and Medicare trust funds.
Generally, there are no tax withholdings on this income. Thus, you may
have been subject to the requirement to make quarterly estimated tax payments.
If you did not make timely estimated tax payments, you may be assessed a penalty
for an underpayment of estimated tax. Employees pay into the social security
and Medicare trust funds, as well as income tax withholding, through payroll
If you are not sure whether you are an independent contractor or an employee,
complete Form SS-8 (PDF), Determination of
Employee Work Status for Purposes of Federal Employment Taxes and Income Tax
Withholding. For more information on employer-employee relationships,
refer to Chapter 2 of Publication 15, Circular E, Employer's Tax Guide and
Chapter 2 of Publication 15-A, Employer's Supplemental Tax Guide and Publication 1779 (PDF), Employee Independent Contractor
Brochure. For information on the tax responsibilities of self-employed
persons, refer to Publication 505, Tax Withholding and Estimated Tax,
and Publication 533, Self-Employment Tax.
I made some money repairing radios and television sets last year.
How do I report this income?
This is self employment income. A person with income from Self-Employment
files Form 1040, Schedule C (PDF), Profit
or Loss from Business, or in some cases, files Form 1040, Schedule C-EZ (PDF), Net Profit from Business to report the
profit or loss from the business, and files Form 1040, Schedule SE (PDF), Self-Employment Tax to figure Social Security
and Medicare Tax. Refer to Tax Topic 407, Business Income, Publication 533, Self-Employment
Tax, and Publication 334, Tax Guide for Small Business,
for additional information. Since there is no withholding on your self-employment
income, you may need to make quarterly estimated tax payments. This is done
using a Form 1040-ES (PDF), Estimated Tax