W-2, W-4, W-9, 1099…hut hut hike?

It’s the end of January and it's Superbowl season for not only America’s beloved football teams, but America’s sweethearts, the tax accountants. During January, accountants are at peak performance, navigating a large field of defenders like the IRS and local state tax agencies, with their confusing forms and outdated IT systems.

Here’s a playbook for common employment-related tax forms that will be delivered to your mailbox (or email) in the next month:

For Employees:

W-2: This is an annual form that you receive from your employer (i.e., they pay you on payroll) which tells both the IRS and you what you earned in the year. There’s also information such as how much you paid for pre-tax medical insurance and retirement plans like a 401(k).

Quick gut check: Your box 1 (which reports wages and total compensation) should be LESS than what you made for the year overall.

Common Box 1 Scenario:

+ Salary

+ Bonus

+ Tips

+ Commissions

+ Imputed benefits (wellness stipends, imputed life or disability insurance)

- Pretax medical insurance (dental, vision, medical)

- Pretax 401(k) retirement deferrals

- Pretax HSA/FSA deferrals

= Box 1 Taxable Wages

The rest of the boxes on the W-2 are basically going to tell you how much tax was withheld and random details about imputed income, employer sponsored plans, or stock options.

W-4: When you start a job, you fill out a W-4 which is a form that lets your employer know what state you live in and how much tax you want withheld from your paycheck. The goal is that the employer withholds roughly the amount of the tax you will owe for the year. You will fill this out when you are hired and will encounter it again only if you want to adjust the amount of taxes you have withheld from your paycheck.

For Contractors/Freelancers:

1099-NEC: This is the equivalent of the W-2, but you aren’t being paid on payroll, you are being paid directly with no tax withholdings or benefits. This form tells both the IRS and you what you earned in the year (paid via ACH, wire, check, Venmo/Paypal/Cashapp,etc). It excludes credit card payments you may have received. If you made more than $600 from one business in the year, you will receive this form unless your W-9 exempts you as an INC, S-Corp, or Non-profit.

Advice: if you are self-employed, I beg you to track your own income (Google Sheets is the easiest in my professional experience) and not rely on your customers sending you 1099s to understand what you earned in the year. Freelancers often rely on the customer generated year-end forms to figure out their income for the year. Unfortunately, the 1099 forms often get lost in mail, potentially issued incorrectly, or issued very late. This makes tax time even more stressful.

W-9: When you start work with a new customer, you need to send them a copy of your W-9. A W-9 is a simple form that provides your tax ID, mailing address, and taxable status (INC, LLC, Partnership or a Sole Proprietor, only you). It lists your tax ID which can be an SSN -individual, ITIN - non-USA individual, or EIN - company/individual.

Advice: Apply for an IRS EIN (Employer Identification Number) so that you are able to hand customers a W-9 that does not have your personal SSN on it. Although it says ‘Employer’ in the name, anyone can get an EIN to basically tell the IRS, ‘Hey, this is a business and it’s linked to me, but it’s not my personal SSN’. There are other benefits to an EIN if you ever want to expand, but for a sole proprietor I recommend it so you aren’t splashing your SSN around on mostly unprotected PDF forms to customers.

For Employers:

W-9: You must collect this form from every vendor you pay with a check, cash, ACH, wire, and Venmo (if it’s to someone’s personal Venmo-type account). In my experience, most sole-proprietors, freelancers, and people handing out Venmo profiles as a payment method are not working with a business profile on Venmo. Therefore, the business must provide a W-9.

Advice: Do not pay any vendor until you have a W-9 in hand. Vendors are not incentivized to submit this after they have received payment and are ad-hoc workers. I’ve seen so many businesses get to year end and panic to collect W-9s once they realize how much they’ve paid vendors throughout the course of the year. Some freelancers rely on their customers to produce 1099s for them to track their income, so it’s important to be thorough when filing.

1099-NEC: You must issue a 1099-NEC for any vendor that you paid more than $600 and is not a Corporation (INC), S-Corp, or Non-profit. I often see businesses pay local vendors (maintenance, cleaning, repairs) and not collect a W-9 before paying. Come year end, it’s hard to track this information down.

The IRS rule is that every vendor gets a 1099-NEC or 1099-MISC unless there is an exception. Also, if you cannot confirm the vendor’s SSN/EIN, you must withhold backup taxes (15%) from your vendors payments. As a small business, it may seem easy to overlook this, but the IRS could come back on you and say that you should’ve had backup withholding on behalf of that vendor.

Extra Credit Form explanations – in simple terms:

1099-SA: If you had an HSA, this form lets you know what you spent out of the HSA that year. Think of it as a summary of all your HSA medical spending in the year.  

5498-SA: If you had an HSA, this form lets you know how much you deposited into the HSA that year.

1099-R: If you rolled over a 401(k) or took a distribution from your retirement plan, you’ll get this form.

1095-A, B, or C: Health Insurance reporting.

1099-NEC: NEC stands for Non-Employee Compensation

1099-MISC: 1099-NEC used to be a specific box on 1099-MISC , but now the 1099-MISC is only used for non-freelance type payments.

For all of the forms listed, most tax software does all the work if you enter the forms in correctly. The hardest part is organizing them all together, but try thinking of tax season like the Superbowl and maybe it will be more interesting.

This is not tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.