W9 Vs. 1099 Tax Forms: What's The Difference? (2024)

Small Business Writer, Managing Editor, SMB

Updated: Jan 5, 2024, 9:05am

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A W-9 form is a basic tax form used in the United States for tax filing purposes. As a freelancer or independent contractor, this form is used to collect important tax information including your taxpayer identification number (TIN) or Social Security number, entity structure, name and address. If you are an independent contractor or vendor, you will be asked by the company that uses your services to fill out a W-9 form. This form provides the information needed to issue you a 1099 income form at the end of the year.

The IRS considers the 1099 form a type of “information return.” Independent contractors receive 1099 forms rather than W-2s as a record of income earned. You will be issued a 1099 form at the end of the year with the information that was provided on your W-9 form. The 1099 form tells the IRS the total income you have earned from the individual or company that hired and paid you. You should receive a 1099 form for anything over $600 in income but may still receive a 1099 even if you collect under $600.

1099 forms and W-9 forms are both considered important tax documents. A W-9 form is used by independent contractors and freelancers to document identifying information. The 1099 forms are prepared by the business that hires the contractor when they work together and sent to the contractor at the end of the calendar year.

When To Use a W-9

Any individual or business paying an independent contractor for services over $600 is responsible for collecting a W-9 form and an informational return must be submitted to the IRS to disclose payments. The independent contractor is responsible for filling out important information on the W-9 form and returning it to the business they receive compensation from.

Some examples of independent contractors include:

• Writers
• Actors
• Accountants
• Consultants
• Auto mechanic
• Carpenter

When To Use a 1099

If you work as an independent contractor, you will receive one for contract work over $600. You do not need to include the form itself when you do your taxes, but you must include the income from your 1099s when you report your income to the IRS.

Any entities that pay you for your services are responsible for sending you a 1099. As an independent contractor, you may be servicing many different companies, so it’s important to make sure you collect 1099s from each business. You could also be an employee for one company and simultaneously work as an independent contractor elsewhere in which case you would get a 1099 for the contract work.

There are 21 types of 1099 tax forms but if you’re an independent contractor the two most common 1099 forms used are 1099-NEC and 1099-MISC.

What Is a 1099-NEC Tax Form?

NEC stands for nonemployee compensation. If you are a limited liability company (LLC) or sole proprietor of your own business and you provide a service to clients, you will receive a 1099-NEC from each client served. Before 2020, revenue was previously reported on a 1099-MISC form but now it is to be reported on a 1099-NEC form. It is mandatory that clients send contractors form 1099-NEC by January 31. The 1099-NEC form is generally used to report business payments―not personal ones. Form 1099-NEC is NOT used for:

• Payments made to C corporation (C-corp) or S corporation (S corp)
• Nonbusiness expenses or payments not reported through 1099 form
• Medical and healthcare payments
• Rent, dividends, proceeds and more

What Is a 1099-MISC Tax Form?

1099-MISC stands for “miscellaneous” reporting. You will file a 1099-MISC form to anyone you have paid during the year that included:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
• At least $600 in rents, prizes and awards, other income payments, medical and health payments, payments to an attorney and more.

The 1099-MISC Form is also used to report direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

Bottom Line

Unlike an employee―who receives a W-2 form―it’s important to remember that an independent contractor is responsible for self-employment tax. Contractors are required to withhold and pay their own taxes. Both the independent contractor and the client are responsible for gathering, reporting and tracking earnings on each end. The W-9 and 1099 forms are essential in reporting accurate earnings and paying taxes at the end of each calendar year.