Form W-2 and Forms 1099 are used to report income. The only thing that differentiates the two is the type of income being reported. While Form W-2 reports wage, salary and other compensation paid to employees by an employer, Form 1099 reports all other types of income.
There are more than just one type of Form 1099 and its use goes beyond just the employer and the employee. Assume you hired a freelancer or a contractor to do some work for your business. If the payments made to that contractor is more than $600, you will file a Form 1099-MISC and furnish it to the contractor the same way you do it for your employees. Except for this time with Form 1099-MISC, not W-2.
Other than this, there are many cases where Form 1099 is used. The most commonly, Forms 1099 is used in reporting withdrawals from a retirement account, government payments, interest payments, and other distributions. It can also report canceled debt. Since the cancellation of debt is considered as taxable income, you will use Form 1099 to file taxes.
The bottom line here is both Form W-2 and Form 1099 is used to report income. The only difference is the type of income reported. While Form W-2 doesn’t go beyond the employer and the employee, Form 1099 can be used to report any other income paid to an individual or an entity.
This depends on which Form 1099 is filed but it is usually used by businesses and corporations. Learn more about W-2 from our front page and how to file it as an employer or how to file taxes as an employee when your employer furnishes a W-2.