Filing a W-2 and 1099 Together: A Guide for Multi-Income Workers

Justin is an IRS Enrolled Agent, allowing him to represent taxpayers before the IRS. He loves helping freelancers and small business owners save on taxes. He is besides an lawyer and works part-time with the Keeper Tax team. If you ’ re one of the many Americans who just started a side hustle while besides working a regular job, you ’ re going to find yourself with two types of forms come tax time : How do you file both a W-2 and a 1099 on the like render ? possibly you ’ re lone working part-time because you ’ re trying to get a freelance career off the crunch, but it ’ s not quite paying the bills fair however. Or possibly you ’ re working three minimum-wage jobs, and it ’ s still not enough. therefore in your already-limited free meter, you start driving for GrubHub for some extra cash.

here ’ s a scenario : Let ’ s say you ’ re working a regular 9-to-5 speculate, but it ’ s not fulfilling you creatively. So you start selling your art on Etsy .

Who gets a 1099, and who gets a W-2?

An independent contractile organ will get a 1099, while a regular employee will get a W-2. immediately, most people are already familiar with W-2s. It ’ s the form employers use to report the annual wages earned by an employee — and any withholdings from income. An employer must send a replicate of the W-2 to both the employee and the IRS. The employer will besides withhold taxes from the wage payments the employee receives. Simple, straightforward — no problem. But what about the income you make on the side ? If you get paid $ 600 or more in a year as an freelancer contractor from a individual node, you ’ ll receive a 1099 form. This will either be a 1099-NEC if you got paid immediately ( the “ NEC ” stands for Non-Employee Compensation ) or a 1099-K if you got paid through a credit tease or requital app. This means the golden folks who earn money both ways end up with two types of forms coming in at tax time .

Are W-2 and 1099 workers taxed differently?

Yes. The main difference is that W-2 workers get taxes withheld from their paychecks mechanically, as mentioned above. They besides pay less in FICA taxes .

FICA taxes for W-2 vs. 1099 workers

Whenever person earns taxable income, the IRS collections 15.3 % of it under the Federal Insurance Contributions Act, or FICA. That sum includes the 12.4 % Social Security tax and the 2.9 % Medicare tax. For W-2 workers This is genuine whether you ’ re earning money as an employee or an mugwump contractor. The dispute is, W-2 employees alone pay 7.65 % of the FICA tax out of pocket, with the employer covering the remaining 7.65 %. For 1099 workers If you ’ re a 1099 worker, though, you will be creditworthy for the integral 15.3 % FICA tax on the final income from your business. ( This is normally referred to as self-employment tax. ) While this may seem unfair, the rationale is that you are serving as both the employee and employer and should pay both halves of the tax. For people who earn both W-2 and 1099 income, you ’ ll be paying the self-employment tax only on the money you earn through self-employment — the FICA tax on your even wages remains the lapp. { write_off_block }

How to know if you’re a W-2 worker or a 1099 worker

hopefully, the person paying you told you what your work condition was when you got the job. But if you ’ re ill-defined, here are a few things to keep in heed when figuring out your tax condition :

🕐 Behavioral expectations

Are you being told when to work, how you ’ ll do the job, and what equipment you ’ ll practice ? Do you have to request a day off ? These sorts of expectations are set by employers for their employees, and they should come with a W-2 .

🏦 Financial expectations

Does your workplace buy new equipment and cover the cost of repairs when things break ? Do they determine what dates you get paid on, and what the method of payment will be ? If they buy everything and there ’ s no negotiations on payment dates, you should get a W-2 .

🤝 Relationship expectations

As a general rule, does the company have a say over how you use your time ? Do they provide you with company-covered benefits, such as vomit days and pension ? If they don ’ deoxythymidine monophosphate, and you negotiate and set your own terms, you credibly receive a 1099 .

Did you get a 1099 when you were expecting a W-2?

If you thought you were working as an employee with a caller but received a 1099-NEC alternatively of a W-2, you ’ ll need to contact your company about your employment condition with the organization. It is potential that they made a error. But there have been times when business owners have misclassified their employees on purpose to avoid paying their share of payroll taxes and benefits like health insurance. If you have been misclassified as an mugwump contractor, you won ’ thymine enjoy all the legal benefits due to an employee, like unemployment insurance and workers ’ compensation. Always be surely you get the correct abridge .

Can you get a W-2 and a 1099 from the same company?

Yes, but it ’ s very rare. There are two cases when this might happen : side projects and a change in make status .

🖌️ When the employee has a side project

This normally happens when a clientele has paid an employee to work on a side project unrelated to their regular work. For exercise, if a business pays an position actor extra to come in and repaint the office over a weekend, that extra payment will likely be treated as a non-employee service. The employee will receive a 1099 reporting the paint income in accession to the W-2 reporting their regular wages.

👔 When a contractor becomes an employee

This can besides happen if a worker ’ mho status at a company changes in the middle of a tax year. Let ‘s say person freelances for a company, and then gets offered a full-time job there. That beginning tax season, they ’ ll need to report both their initial mercenary income with a 1099, and then their unconstipated wage with a W-2 .

Using 1099 income to lower your tax bill

The good news : freelance people, including those with a even job, get to claim a draw more deductions than people who only work a W-2 occupation. Before you get besides excited, remember : These expenses do need to be related to your freelance study. But that credibly covers a batch more than you ’ five hundred think ! Some park 1099 deductions include : If the prospect of tracking all this seems overpower, don ’ deoxythymidine monophosphate worry. Keeper Tax will automatically scan your expenses and deduct the ones relating to your business — without the need for you to save every acknowledge. It can even file your forms for you at tax time ! { upsell_block }

Using your W-2 job to lower your quarterly taxes

In addition to more forms, one other thing freelance people take on when starting their business is quarterly taxes. These are due four times a year, and you ‘ll have to pay them if you expect to owe $ 1,000 or more in tax on your self-employment income. quarterly taxes are the bane of every mercenary ’ sulfur being, but it actually helps if you have a W-2 job as well ! W-2 employees can increase their income tax withholdings to cover any tax due on their earnings as freelancer contractors. If your W-2 withholdings aren ’ thymine enough to cover the income tax on your form 1099 income, you ’ ll need to make estimate tax payments each one-fourth to the IRS using a Form 1040-ES, Estimated Tax for Individuals. not certain how much you ’ ll owe ? Use our absolve quarterly tax calculator to find out ! { email_capture }

Filing your taxes with both a W-2 and 1099

Roll up your sleeves, it ’ second time to get file ! You ’ ll be doing a set more calculations than normal, then get a coffee bean and settle in .

Step #1: Report your W-2 income

The process for reporting your W-2 income is relatively square. On your form 1040, or Individualized Income Tax Return, these are the boxes worth paying the most attention to :Part of a blank 1040 with boxes 1, 2a-6a, and 2b-6b circled in blue

  • 📌 The income from box 1 of the W-2 will go on line 1 of the 1040
  • 📌 Any interest, dividends, retirement accounts, or Social Security benefits you received on lines 2a through 6b of the 1040
  • 📌 Withholding from your W-2 will go on 25a of the 1040

Part of a blank Form 1040 with line 25a circled in blue

Step #2: Report your 1099 earnings 

Reporting your 1099 income on your 1040 is more complicate, but it ’ s not that bad once you understand what ’ sulfur going on ! For this part of your taxes, you ’ ll need Form Schedule C. This form is used for reporting income from a sole proprietorship, a business owned by a single individual. Schedule C is share of your individual tax return and not a break commercial enterprise tax return. notice that you ’ ll necessitate to file a 1040 Schedule C for each business you operate. For case, if you ’ re an Amazon Flex driver and a musician, you ’ ll need to file one Schedule C for your pitch business and a second one for your music clientele. Line 1 of Schedule C should list your sum business income from that job for the year. It should be at least adenine much as the income on all the 1099 forms you got for that job .

Step #3: Put in your 1099 deductions

If your business sold goods, you subtract the cost of goods sold from your earnings to get your megascopic income, which you ’ ll put on Line 7. If you didn ’ thyroxine sell any goods, just enter your occupation income from Line 1 directly on Line 7. You then calculate your deductions for business expenses. The deduction categories are listed on lines 8 through 27, in alphabetic order .

Step #4: Find your taxable self-employment income

once your deductions have been entered, subtract your total deductions from your Line 7 gross income on your Schedule C. If you claim the base function subtraction, list it on Line 30 and subtract it from your Line 7 gross income arsenic well. Your crying income minus the sum of your deductions is your taxable income from self-employment .

Step #5: Calculate your self-employment tax amount

Any taxable self-employment income over $ 400 is subject to the self-employment tax. This is calculated by subtracting business expenses from your taxable income, then multiplying the difference by 0.9235 ( or 92.35 % of your taxable income ). This leftover mathematics reflects the fact that you deduct 50 % of your self-employment tax from the income used to calculate the tax. Don ’ deoxythymidine monophosphate concern — the tax forms show you how to do this calculation, and which pipeline to enter the numbers into. If you ’ ve earned more than $ 400 in taxable income according to the calculation above, you ’ ll want to file a Schedule SE, Self-Employment Tax .

Step #5: Put it all together

Wait, you ’ re not quite done with forms yet ! Before you can add your self-employment income to your 1040, you ’ ll need to summarize everything on a Form Schedule 1. Your Schedule C income goes on line 3 .Part of a blank Schedule 1 with line 3 circled in blue now you can add that number to line 8 of your regular 1040 and run through the rest of 1040 for your final income tax results. then fair submit all your forms in concert, and you ’ re done !

Part of a blank 1040 with line 8 circled in blue Afraid you ’ ll miss something ? Keeper Tax can besides submit your tax forms, so you never need to worry about forgetting a human body ! { filing_upsell_block } Phew ! As you can see, filing taxes with both a W-2 and a 1099 is more work than you may be used to — but the peace of heed that comes from having multiple streams of income is worth it .

reference :
Category : Finance

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