W4 vs W2 vs W9 vs 1099 Tax Forms: What Are the Differences?

While the W4 vs W2 vs W9 vs 1099 are all tax forms, they serve very different purposes. Here’s a broad strokes comparison of the multiple forms.

W4 vs W2 vs W9 vs 1099 tax forms
The W9 vs W2: W9 is filled out by a freelancer for their clients, while the W2 is provided to an employee by their employer.

W4 vs W2 vs W9 vs 1099 Summary

The W4 Form is what a full-time employee fills out for their employer when they start a new job. This form tells the employer how many deductions you will take when you file your personal tax return.

That information allows them to correctly determine how they should hold back in taxes for you, which they send to the IRS on your behalf after every paycheck

The W2 form is provided to the “full-time” employee by the employer, at the end of the year, so the employee can file their tax return.

It summarizes the employees wages for the year, as well as how many tax dollars were held back and sent to the IRS on the employees behalf. It also get sent to the IRS, so they have an accurate record of this information.

The W9 form, on the other hand, is filled out by a freelancer or independent contractor, and then given to company hiring them for their “independent” services.

a W9 provides to the employer contact information, but also informs them on how they need to report any moneys paid to the IRS, at the end of the year. Often, that year end total gets reported to both the contractor and the IRS via a 1099.

The 1099 form is what a company provides to an independant contractor at the end of the year. It summarizes how much the hiring company has paid the contractor.

This form is also sent to the IRS, so they know how much the independent contractor received from the hiring company.

Which Form Do I Need?

The form you use depends on if you are a long term employee of a company, or one being contracted short term for a specific task or service.

If you have ever been an employee, you’ve likely received a W2 at the end of the year from your employer. It’s not something you fill out. The form shows how much you’ve earned, and how much was deducted for taxes and contributed to retirement plans.

W9 vs W2..this is the W2
A W2 will look similar to this

You use this form to help file your tax return. This information gets sent to the IRS as well, so they know how much money you made.

To further clarify requirements related to “full-time” employees, you will be asked to fill out whats called a W4 when you begin your employment. The W4 is what tells the company how much tax they need to withhold from your regular paycheck and send to the IRS.

this is the 2021 IRS W4 form
This is the 2021 IRS W4 form

Conversely, if you’re self-employed as a freelancer or independent contractor, you will not receive a W2 at the end of the year. Instead you’ll get a 1099.

Your taxes will not be taken out of your pay for you, and sent to the IRS on your behalf. You need to calculate your own payroll taxes and then submit the sum to the government (usually with the help of a CPA when you file your tax return).

A 1099 will look similar to this

So when does the W9 form come in to play? Well, this is the form a freelancer or independent contractor fills out to give important tax information (like the taxpayer identification number) to their clients.

When it comes to differentiating between an employee and an independent contractor. It can be confusing for both the employer, who’s trying to be a responsible business owner, and for the worker. The rules around this vary by state.

W9 vs W2..this is the W9
This is the 2018 IRS W9 form

Read on to learn more details about the W9 vs W2, and how to know the difference between an independent contractor and an employee.

There are some amazing tax benefits for individuals who can work in the capacity of an independent contractor. It’s worth looking at my W2 calculator to see the benefits, and then figure out if you can qualify to work this way! You can access the W2 calculator in this free course.

More detail on the W2 Form

Let’s start with the most common IRS form, and one most employees receive at the end of each working year. The W2 form is the form created for an employee by an employer.

It shows the IRS information about the money they have made over the course of a year. It also tells what has been paid in taxes. 

The W2 form is used for employees who work for an employer consistently and for whom the employer is responsible to deduct taxes and pay them to the IRS. Often referred to as a “full-time” employee.

The W2 form contains:

  • Personal contact information from the employee
  • Employer name and information
  • EIN or the Employer Identification Number which is how the IRS knows the company
  • Deductions
  • Contributions
  • Salary and bonuses

The amount of deductions is based on the W4 form the employee completes upon being hired. The W2 form is needed to file taxes for tax returns each year. 

More detail on the W9 Form

A W9 form is filled out by independent contractors and freelancers, and then given to the employer. It includes the following information.

The W9 form contains:

  • Personal contact information
  • Company name if they have an entity
  • Contractor’s social security number or Employer Identification Number (EIN) if they have an entity

Let’s say you as an employer hire a general contractor to work with your business on a project for 2 weeks.

The contractor is technically being employed by you. Yet, as an independent worker, they will be responsible for paying their own taxes to the IRS and the state. 

Still, the IRS wants you to report how much you paid this worker.

This is why the contractor must provide the W9 form to you, with their contact information and Employer Identification Number (EIN) or social security number it.

This connects the independent worker’s information to the IRS, and the person who employed them can report how much was paid to them for the work done.

Employee vs Independent Contractor: When You Are the Worker

As a worker, it’s important to understand when you are an employee and when you are a contractor.

As an employee, you have an employer who is responsible for taking taxes from your wages and paying them to the IRS on your behalf. But, when you are a contractor, you might be getting paid by someone for work, yet you are responsible for sending the taxes on those wages to the IRS yourself. 

Often, as an employee, deductions will be automatically taken from your pay. You might be paying towards insurance benefits or into a retirement account, like a 401K. The employer does this for you.

Conversely, as a contractor or independent worker, you don’t have someone doing this for you. It becomes your responsibility to do it for yourself because you are technically self-employed. 

That said, many contractors become their own businesses or corporation. Then they can seek tax benefits for themselves and their business.

As an employer, you make the decisions about whom you hire and in what capacity. There are certain people you employ to come into work every day and perform regular functions that keep your company running.

These employees go on your “payroll”. Part of your responsibility is to send the employees taxes, to the state and IRS, on their behalf quarterly. Additionally, you’ll need to provide a W2 form at the end of the year to each employee and the IRS.

You may also find there are times when you only need help for a very short period of time, or for a particular task of project. In this case you might hire someone as an independent contractor or consultant, and not put them on “payroll”

In this case, you won’t be responsible for sending the state or IRS their taxes on their behalf. You also wont have to pay the “employer” portion of payroll taxes. They will have to cover those, which can be a significant savings for you.

But what exactly entails a freelancer vs an employee?

Some companies may try to pay more workers as “freelancers” because they want to avoid paying employment taxes, workers compensation, etc. The line can be blurry sometimes, and you certainly don’t want a lawsuit (such as when Uber had to pay out 100 million to its drivers).

So let’s compare the main differences.

Employee

If you hire an employee, they:

  • have assigned hours and a set schedule
  • get company training
  • have an overseeing manager that assigns work and controls what the worker does and how they do their job
  • do work that is part of the regular business, and integral to its functioning
  • use computers and other materials provided by the company
  • are only be employed by you
  • have a regular guaranteed salary

Independent Contractor

If you hire a freelancer or independent contractor, they:

  • will not be tied down to certain working hours
  • Do not always have to be onsite
  • will not need company training
  • are able to turn down work or certain tasks
  • provide their own materials
  • are employed by other companies
  • get paid on a per job basis

Understanding W4 vs W2 vs W9 vs 1099 Tax Forms

Understanding the W4 vs W2 vs W9 vs 1099 forms is important for both employers and employees come tax time. It’s also worthwhile for both to consider which makes the most sense for them to pursue in regards to their companies. 

To learn more about how to protect your company or to become your own company as an independent contractor, check out these courses to get more information.

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