Why you need to understand the difference between W2 and a 1099

Let's break it down – it's not just paperwork; it's the key to navigating your tax responsibilities. First off, the type of form you receive depends on your work status. If you're an employee, you'll likely get a W-2. Independent contractors or freelancers, on the other hand, get a 1099. Why does it matter? Well, your tax obligations differ based on your work status. Employees have taxes withheld from their paychecks, while freelancers are responsible for their own taxes. The W-2 is your ticket to various employee benefits – think health insurance, retirement plans, and more. It also shows your total earnings and taxes paid throughout the year. Now, the 1099 signals a different game. Freelancers are responsible for self-employment taxes, meaning they need to set aside money for Social Security and Medicare on their own. Here's the bottom line – understanding your status as an employee or freelancer is vital for proper tax planning. It affects how much you owe and what deductions you can claim.