1040 Vs. 1099 Tax Forms: What’s The Difference?

There are many different tax forms that the Internal Revenue Service (IRS) has for the purpose of filing taxes. Two of these are 1040, U.S. individual income tax return, and 1099, miscellaneous income or 1099, nonemployee compensation – shortened to 1099-MISC and 1099-NEC, respectively.

Both types of forms are used when filing taxes. The information from your W-2 or W-9 is used to help fill them out properly.

While the names may not seem clear, especially as they’re often referred to by their number rather than their descriptor, the difference between the two is simple. The 1040 form is used by those with regular employment, while 1099 is used by contractors. This difference has to do with how employers and payers handle tax payments.

Key Takeaways:

What Is a 1040 Tax Form?

The 1040 tax form is the U.S. individual income tax return. It’s the form that the majority of people will fill out when filing their taxes. That’s because it’s the form used by those who have standard employment, where their employer pays their taxes out of the paycheck every pay period.

Here are some things to know about form 1040.

• They’re used for typical employment. Anyone who has a typical employment agreement with an employer will use one of these forms. Contractors and others with atypical income will use 1099 instead.

• This is the most commonly used form. That means that, chances are, this is the form you’ll fill out. The majority of people are employed in this manner, which puts some of the onus on keeping track of the tax payments on the employer.

• 1040 is broken down into sections. There are several pieces of information that you need to fill out. Though the form doesn’t demarcate the sections specifically, each one is labeled as a different part of the form.

  • Filing Status. This is where you mark whether you’re single, married filing jointly, married filing separately, the head of household, or a qualifying widow(er).

  • Standard Deduction. This has to do with whether or not you or your spouse can be claimed as a dependent.

  • Dependants. If you have dependents, then you put them here. This is mainly for children, but it can also be for someone with a disability or other status that makes them considered legally dependent.

  • Refund. The next section is if you’ve overpaid your taxes.

  • Amount you owe. This is if you’ve underpaid your taxes.

  • Sign here. Lastly, there’s the section for your signature.

• The income section is broken down into lines. These lines are labeled by numbers or letters – or a number and letter together. All of this information will be on your W-2.

  • Line 1. This is where you list how much you were paid via wages, salaries, and tips.

  • Line 2a. This is for tax-exempt interest.

  • Line 2b. This is for your taxable interest.

  • Line 3a. If you have any qualified dividends, put those here.

  • Line 3b. For your ordinary dividends.

  • Line 4a. IRA distributions.

  • Line 4b. The taxable amount of your distributions.

  • Line 5a. If you have any pensions or annuities, you put the amount here.

  • Line 5b. This is the amount from said pensions and annuities that would be taxable.

  • Line 6a. If you have any social security benefits, list these here.

  • Line 6b. This is the taxable amount of your social security benefits.

  • Line 7. If you have any capital gains, you put the amount here.

  • Line 8. This is for other income from Schedule 1. This would be income or adjustments that can’t be directly entered on form 1040.

  • Line 9. This is your total income. Add the amounts listed in lines 1, 2b, 3b, 5b, 6b, 7, and 8 together.

  • Line 10. Adjustments to income from Schedule 1.

  • Line 11. Adjusted gross income. If there’s anything in line 10, subtract it from line 9.

  • Line 12a. Standard or itemized deductions.

  • Lines 1b – 31. The following lines through line 31 are specific types of deductions.

  • Line 32. you add several other lines together to get your total other payments and refundable credits.

  • Line 33. Add several other lines together to get your total payments.

• You get almost all the information you need from your W-2. All of the information on income will be on your W-2. Your status and exceptions won’t be, but you should have access to that information elsewhere.

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What Is a 1099 Tax Form?

There are actually two types of 1099s, 1099-MISC and 1099-NEC. The 1099-NEC is a newer form and is meant to be used for contractors. All contractor payments used to be reported on the 1099-MISC, but that’s no longer the case. The 1099-MISC form is now reserved for other types of income, such as rent payments, royalties, and medical payments.

Here are a few things to know about the 1099 form.

• They’re used for contractors. Employers that work with contractors will fill out 1099s every year. Contractors should receive 1099 from every company that they contract with, so long as the payment was over $600.

  The forms are used for tax purposes as a way to keep track of how much you were paid and by whom. Many employers mail them, but there are also ways to send them digitally.

• This is the form that you submit to the IRS. 1099s are also the forms that are submitted to the IRS when filing taxes. Oftentimes, it’s only required to fill out certain information from them on the tax form itself – the form contains a fair amount of additional information that only relates to what the IRS requires from employers.

• A 1099 form is broken down into boxes. Some are demarcated by letters, while others don’t have any particular identifier.

• The 1099-MISC and 1099-NEC had different requirements to fill out. Both require:

  • Personal information of the payer.

    • Payer’s name

    • Payer’s full address

    • Payer’s telephone number.

    • Payer’s Tax Identification Number (TIN).

• The contractor’s information is filled out on the form as the “recipient.” This requires their TIN, address, and account number. If you have a second TIN, such as a business or personal one, then you need to mark that as well.

  For the NEC form, it’s expected that you’re getting paid for a job done rather than reporting other types of income. This means that they have to list how much they paid you during that year and whether any federal or state income tax was withheld. If so, they need to list the amounts that were withheld.

• For MISC forms, there are a lot more choices. There are several types of income that are included on the form. You would only fill in the ones that are applicable to your circumstances.

  • Box 1. This is to list payment received from rent, if applicable.

  • Box 2. This is for any royalties received that year.

  • Box 3. Other incomes are listed here.

  • Box 4. If any federal income tax was withheld, the amount is listed here.

  • Box 5. This box is to list any proceeds made from fishing boats.

  • Box 6. If you received payments for healthcare or medical expenses, it goes in this box.

  • Box 7. You check the box here if the payer made a direct sale of more than 5,000 dollars that is intended for resale.

  • Box 8. This would be for if you received any payments in lieu of dividends or interest.

  • Box 9. Proceeds from crop insurance should be enumerated here.

  • Box 10. Gross proceeds paid to an attorney are counted on 1099 forms and should be put in this box.

  • Box 11. Should you have purchased any fish for resale, the amount should be played here.

  • Box 12. This is for section 409A deferrals. 409A deferrals are very broad but are payments that are meant to be paid at a later date, such as pension plans, severance packages, or stock options.

  • Box 13. This box should be checked if it meets the Foreign Account Tax Compliance Act (FATCA) filing requirement. That means that if you have any foreign accounts or made money other than in the U.S., you have to check this box.

  • Box 14. A section for excess golden parachute payments. While many consider all golden parachute payments to be “excess,” there are only certain requirements where it ends up on 1099.

  • Box 15. This is for nonqualified deferred compensation.

  • Box 16. This is for state taxes that may have been withheld.

  • Box 17. Reserved in this space is the payer’s state number or the state’s number.

  • Box 18. This is where you put your state income.

1040 vs. 1099 FAQ

1. Is your W-2 the same as 1040?

   No, your W-2 and 1040 are different forms. A W-2 is the form that your employer will send to you with information on your income and tax rate, while a 1040 form is the form that you fill out and send to the IRS when filing your taxes.

   The W-2 will have the majority of the information you need in order to file your 1040 tax form. You will often submit the W-2 as well with your 1040, but the forms are not the same.

2. Is 1040 the most common return form?

   Yes, form 1040 is the most common tax form filed. It’s the form used for standard employment, so both part-time and full-time workers will use it. Contractors and others who receive non-standard forms of income will use 1099, but it’s much less common.

Author

Di Doherty

Di has been a writer for more than half her life. Most of her writing so far has been fiction, and she’s gotten short stories published in online magazines Kzine and Silver Blade, as well as a flash fiction piece in the Bookends review. Di graduated from Mary Baldwin College (now University) with a degree in Psychology and Sociology.