W-2

• A W-2 is a form used by an employer to report wages, tips, adoption and dependent care benefits, advanced Earned Income Credit payments and allocated tips for an employee. Each employee receives a W-2 by January 31 following the tax year. A W-2 is used as a reference to show an employee's earnings and other information for income tax preparation. The employer must complete a W-2 for all employees. An employee is anyone who performs services for a company if the employer can control what work will be done and how the work is performed. If your employer cannot control what work you complete and how it is completed, your employer does not consider you an employee.
  
  

1099

• A 1099 is a form used by a business to report the amount of money paid to anyone who performed work and is not an employee. If you are not an employee of a company, you might receive a 1099 instead of a W-2. Recipients of a 1099 are generally independent contractors or freelancers and work for cash or check. The business is responsible for keeping track of what they pay you and not responsible for withholding income taxes. It is your responsibility to pay all income taxes on your income.
  
  

Independent Contractor

• Independent contractors are considered self-employed. If the payer has the right to control only the result of the work and not how or when it will be completed, you are considered an independent contractor. Most independant contractors are paid cash and not all receive a 1099. Payees are only required to prepare a 1099 for independent contractors who generated $600 or more of income.
  
  

Reporting Cash Payments

• If you did not receive a 1099, it is your responsibility to report your income to the IRS and your state's department of revenue. You must prepare Form 1040 and pay the self-employment tax on your income. Self-employment tax includes the Social Security and Medicare tax you would normally pay out of your paycheck if you were an employee. In addition, you must complete Schedule SE to calculate the self-employment tax. If you had job-related expenses, you must complete Schedule C.