Do you know if you’re classified as a W2 or a 1099 employee?
This information might not seem critical, but it’s essential you know your classification for tax purposes. After all, employers don’t always make employee classifications clear, so make sure you fully understand what you’re getting into before you accept a position.
With that in mind, keep reading to learn more about what a W2 employee is, how it differs from a 1099 employee, and what you need to know when tax season rolls around.
What Is a W2 Employee?
The Internal Revenue Service (IRS) classifies a W2 employee as someone who is employed full time at a company.
You’ll know if you’re a W2 employee during your first few days with the company when your employer is required to have you fill out a W2 form and submit it to the IRS. This form asks you essential tax information that will determine how much money your employer needs to withhold from your paycheck.
You must fill out this form correctly. If you don’t withhold enough taxes throughout the year, you’ll have to write a big check around tax season.
W2 vs. 1099 Employees
There are two main types of employees in the eyes of the IRS: W2 employees and 1099 employees.
As previously mentioned, W2 employees usually work in a full-time capacity for a specific company; furthermore, W2 employees work hours set by their employers and are required to meet certain expectations.
On the other hand, 1099 employees are considered independent contractors and are allowed to set their own schedules, accept projects as they wish, and complete the work how they see fit. These employees often work for multiple clients and offer their services on a freelance basis. Most 1099 employees are also excluded from non-payroll benefits, like health insurance and a 401(k) plan.
How This Impacts Your Taxes
The main difference between these two classifications is that W2 employees have their employer file taxes for them. When an employer files a W2, they are reporting your wages to the IRS and take on the responsibility of collecting, filing and withholding social security taxes.
If you work multiple jobs, you might be both a W2 and a 1099 employee, so make sure you check your status and know when you need to file taxes.
No matter what type of employee you are, you should always keep copies of your pay stubs. Your employer should provide you with a copy of your pay stubs after every paycheck. If not, however, you can easily create your own with a pay stub generator.
Pay stubs allow you to keep track of the money you make throughout the year. You’ll want to use these to verify your tax forms or file your taxes if you’re a 1099 employee.
Learn More About Paying Your Taxes
Paying taxes as a W2 employee doesn’t have to be a complicated process if you stay organized throughout the year and always keep copies of your pay stubs close by.
Photo Credit: stock photo