Filing W2 and 1099 Together | How to File Taxes with Two Jobs
If you’ve ever worked two jobs, you might be wondering what your tax situation is like receiving both W2 and 1099 forms. Although this situation may seem rare, it’s actually relatively common. Anyone who has a full-time job, but makes extra side income doing something like Uber, DoorDash, Instacart, etc. would be in this situation. Lastly, having both a W2 and 1099 form may seem really complicated for tax filing (and it is), but we’re here to help you navigate through each step. If you want the short answer, having both W2 and 1099 forms means:
Unpaid taxes on your freelance income, which means you need to make estimated quarterly tax payments, or may have a tax liability, or a smaller refund at year end
Different tax rates on your freelance income due to Self Employment Tax
Eligible freelance expense you can deduct from your freelance income
Let’s cover some basics first.
Who would receive a 1099?
Anyone who is paid over $600 for work, but isn’t employed by that party, should receive a 1099 from the party that pays them. Specifically, you should be receiving a 1099-NEC form, which is the new standard for “Non-employee Compensation”, 1099-K, or 1099-MISC (rare)
Some examples include:
Receiving a 1099-NEC, 1099-K, or 1099-MISC from Uber, DoorDash, or Instacart for compensation while driving and earning other commissions like referrals
Receiving a 1099-NEC directly from a client whom you provided work for. Work can be anything–for example, graphic design services
Sometimes, you may not receive a 1099 because you haven’t earned over $600, or the payer was negligent–this doesn’t mean that you don’t need to report the income, you still do. Here is a quick summary of all the possible 1099 forms that you may receive. For most, you would only be dealing with the 1099-NEC or 1099-K.
| Form Type | What it does | Who does what | Why you need it |
|---|---|---|---|
| 1099-NEC | The most modern form type for freelancer payments. You receive this from clients if they've paid you over $600 | You receive this from clients | You should receive a 1099-NEC from each client, and it summarizes the total amount you've received from each client. You need this know your income and to file your taxes |
| 1099-MISC | The legacy 1099 form that used to be sent out. Some clients may still send this form out incorrectly, but you should be receiving the NEC instead. 1099-MISC is correctly sent out for payments that have to do with rent, royalties, attorney fees, more obscure payments. | You receive this from clients | This is a legacy 1099 format--starting in 2020, you should no longer receive a 1099-MISC for regular freelancing payments. Unless you are receiving payment for obscure services like rent, attorney fees, prizes, royalties or interest, you shouldn't receive a 1099-MISC. If you do receive one, it is used to summarize payments and to file taxes. |
| 1099-K | Same function as a 1099-NEC, but A different type of 1099 that you may receive from payment providers like PayPal, or Venmo, or Stripe. Many gig economy drivers also receive this from Uber, Lyft, etc. If your payments are processed through a provider, they will be the ones to send you a 1099-K, instead of the client. | You receive this from payment providers | You should receive this if your freelancing pay was processed through a payment provider. As a facilitator of payments, companies like PayPal have to aggregate and send out 1099s, called 1099-K. These can be used in the same way 1099-NECs are used or in conjunction, they just come from payment providers and not the client themselves. |
To be clear, you wouldn’t receive a 1099 for work at your full-time job and you would instead be receiving a W2.
Who would receive a W2?
A W2 is sent to anyone who is formally employed by a company. You receive this usually by January 31st of the subsequent year and it summarizes all your pay and taxes withheld for the entire year. The W2 is something we’re all pretty familiar with–anyone who’s had a full-time job has received one, and it’s very straightforward. Come tax time, you punch in a few numbers as they’re shown exactly on the form, and you’re essentially done. Here’s an example of what a W2 form looks like:
What’s the difference between a W2 and a 1099?
Put simply,
A W2 is a form you receive at the end of the year, if you’re an employee and it sums up your earnings and any taxes withheld
A 1099 is a form you receive as an independent contractor who has received payments over $600 for work. It has no taxes withheld.
The primary differences between the two forms are:
Since most people only have 1 full-time job, you usually only have 1 W2, and it also helps you withhold (prepay) taxes, making it very easy to use come tax time
1099s come in many forms like NEC, MISC, K, and G and only detail payment amounts, with no option to withhold taxes. You are responsible for estimating how much tax you owe on freelance income. You can receive multiple 1099s from multiple sources and it’s up to you to keep them organized
How does a W2 and 1099 Form Affect My Taxes?
The main implications for having both W2 and 1099 forms are taxes. In a W2 form, taxes are generally pretty easy and straightforward. Your taxes are withheld for you on a regular basis from your paycheck–this is why many people get a “refund” during tax filing, because they’ve actually overpaid what they owe through withholding. At the end of the year, the W2 summarizes everything and you pretty much just have to punch in numbers to complete filing your taxes. Not so with the 1099.
Work performed on a 1099 basis (contract, or freelance basis) does not usually give you the luxury of having taxes withheld from your pay. What is detailed on the 1099 form, is your gross pay–nothing has been taken out of your pay for taxes, but you definitely owe taxes on the income. This means that as the contractor, you are responsible for estimating how much tax you owe for any income made on a contract basis. Not only that, but you may receive multiple 1099 forms from multiple sources.
How are Taxes Affected Filing W2 and 1099 Together?
If you receive both the W2 and 1099 forms, here are some common tax implications:
You haven’t paid any taxes on your freelance, or 1099 income because taxes were not withheld. This means you should expect to owe a bit more tax overall, which only makes sense because you’re making additional income.
Your W2 really doesn’t change–what you make remains the same, and what taxes are withheld remains the same, unless you’ve elected to change your withholdings (which we will cover later)
If you’ve performed 1099 work, you should have some eligible expenses or write offs you can use to reduce your taxable income. For example, if you do freelance writing and you made $10,000 freelancing and you purchased a new keyboard for $150 to replace or upgrade your equipment, you can deduct $150 from your $10,000 income so that only $9,850 is taxed. Here’s a list of some common deductions for freelancers:
Internet–in today’s world, it’s probably impossible to be a freelancer without using the internet. You’re going to need the internet to converse with clients, deliver completed projections, invoice clients, keep track of hours, etc. etc. To the extent that you use the internet to conduct your business, you can deduct that portion. For example, 50% of the time you spend on the internet is spent on conducting business, then you can deduct 50% of your monthly internet bill as an expense.
Supplies–despite many things being digital, you still will probably need some kind of physical supplies to help you freelance. Maybe you like to jot down short pieces in writing to help you brainstorm, the pen you use, the notebook you write on, and the desk that you put everything on can all be considered supplies.
Computer and software–if you need to upgrade your PC or Mac to conduct freelance, or purchase software like a word processor, or other writing tools to help you be more efficient, then those purchases can be deducted as expenses. This also includes a website you may need to build to showcase your writing portfolio.
Meals and entertainment–although this may be more rare, you’re allowed to deduct meals and entertainment as they pertain to business. For example, as a freelance writer, you’re working on a story where you need to conduct a formal meeting or interview with a possible source. If you meet up at a restaurant or cafe, those expenses can be deducted. For 2021 and 2022 taxes, businesses can take advantage of the Enhanced Business Meal Deduction, which allows businesses to deduct 100% of meals and entertainment, versus the usual 50% limit.
Rent–including the home office deduction: if you dedicate a portion of your home strictly to do your freelance work, you can deduct that portion of the rent as an expense. Similarly, if you actually rent out an office space strictly for business, then you can deduct the entire rent expense.
Any other normal and necessary business expenses
If you make significant 1099 income compared to your W2 income, you may have to make Estimated Quarterly Tax payments. These are payments to directly reduce your tax liability, but made throughout the year. Because your freelance income is high, your W2 withholdings (prepaid tax) may not be enough to cover your total tax liability. You should make these payments quarterly, because the government wants you to pay taxes for income as you make the money, not only at the end of the year. This is no different than having taxes withheld from your paycheck, except you are responsible for tracking and making the payments.
The actual tax rates for your freelance income will be different from your W2 income. This is because any self employment income is subject to the full FICA tax rates–known as Self Employment Tax.Put simply, income from your employer (W2) is only taxed at half the FICA rate (7.65%), while freelance income (1099) is taxed at the full FICA rate (15.3%). You can claim half of your FICA taxes from freelance income as a deduction, which closes the gap. This makes the two income sources ultimately taxed at slightly different rates.
Now, let’s cover how to actually file your taxes
Filing W2 and 1099 Together: Step-by-Step Guide
Remember, your W2 comes from your employer and your 1099s will come from clients directly, or from “gig economy” apps like Uber, or Lyft. For filing taxes, we strongly strongly recommend using tax software like TurboTax, FreeTaxUSA, etc. It will make the process guided and much easier.
1) Identify the main forms you’ll be using, we’ve highlighted important sections and outlined them below:
1040–main tax return form that has all the information. Mainly focus on where your W2 income and 1099 income will flow through, lines 1-6 and 8-11
focus areas on the form 1040
Schedule C–add-on schedule that details out your “business” income and expenses. Even though you may not own a business, the IRS treats freelance income and expenses as if it’s a business. This is where you would enter all your freelance expenses. You’ll need a separate Schedule C for each “business”. For example, if you drive Uber and also do freelance photography, you’ll need a Schedule C for each practice. Mainly focus on lines 1-27. You won’t be using every expense line in Part II
Schedule C important boxes
Schedule SE–an auto populated form by tax software that will help you calculate the Self Employment Tax portion of your freelance income. Here’s what it’ll look like, but in reality the tax software will handle the calculations
Schedule 1–auto populated form which summarizes additional income and will be linked to your 1040
2) Go through the guided wizard of your tax software. Usually, you’ll be asked a series of questions like:
Did you receive a W2? You would answer Yes–and input your W2 numbers directly into the software
Do you have additional income you need to report (1099)? You would answer Yes–then enter each 1099 form individually.
Do you have Business Income you need to report (Schedule C)? You generally would answer Yes–a confusing question because you may think you don’t have a “business”, but this is where your freelancing income and expenses will go. Do not confuse this with accidentally doing an entirely separate business tax return.
Those questions will guide you through filling out the forms listed above
3) After answering all the questions and inputting numbers, everything will carry over to your Form 1040, which is then submitted to the IRS electronically
Tips and Tricks for Filing W2 and 1099 Together:
Here are some pro tips that we recommend so you need to do the minimal amount of calculation and organization if you receive both the W2 and 1099 forms.
Make sure you are withholding the absolute maximum amount of taxes from your W2 wages/paycheck. If you have a full-time job, you can fill out a Form W4, which tells your employer how much tax to withhold from your paycheck. We recommend claiming 0 allowances on your W4, this will make your paychecks “smaller” by withholding more taxes. For someone who also receives 1099 payments, this will help ease many of your additional responsibilities when it comes to taxes. Because you are “prepaying” the maximum amount of taxes:
You may not need to make estimated quarterly tax payments
You may not owe tax at the end of the year, and if your W2 income is significantly more than your freelance income, you may get a refund still
You can worry less about calculating Self Employment Tax, because you are already prepaying for it
Always be cognizant of how your W2 income compares to your 1099, or freelance, income. The higher your freelance income is, the more likely you are to have additional tax implications and planning
Always make sure you are maximizing your freelance expenses to reduce your freelance taxable income. For example, if you drive for Uber, make sure you’re taking the standard mileage deduction for using your car, as well as any other expenses like passenger amenities, or cell phone usage. This will allow you to reduce the amount of income that is taxable from your freelance endeavors.
FAQs:
Can I receive a 1099 and a W-2 from the same employer?
Technically you can–but it’s rare. You would only receive both forms from the same employer if you are employed full-time and also do additional contract work with the same employer, on a contract basis. For example, you work 40 hours a week as a graphic designer, but another department has heard of your great work and wants to pull you in for certain projects on a contract basis. At the end of the year, you would probably receive a W2 for your 40-hour role, and a 1099-NEC for your contract work, from the same employer.
What is a 1099-MISC?
The 1099-MISC is now used for more miscellaneous income such as:
Rent payments
Attorney fees
Royalties
Prize payments
The primary 1099 form for independent contractors is now the 1099-NEC.
