When using tax software, your W-2 and 1099 forms are super important because they show how much you made and how much tax was taken out. The software uses this info to make sure your taxes are calculated right and filed on time.
Continue reading to learn how these forms make tax filing easier.
What Are W-2 and 1099 Forms?
W-2 and 1099 forms are essential documents for anyone earning an income in the U.S. They summarize how much money you made and, depending on the form, how much tax was withheld.
But what’s the difference between them?
The W-2 form is given to employees by their employers. It details your annual wages and the taxes already deducted from your paycheck, like federal, state, and Social Security taxes.
Employers are responsible for sending you this form by January 31 each year, making it easy for you to file your taxes on time. The 1099 form, on the other hand, is for non-employee income.
If you’re a freelancer or contractor or earned money from sources like interest, dividends, or rent, you’ll likely get a 1099. Unlike the W-2, taxes typically aren’t withheld on this income, so you might need to set money aside to cover what you owe when filing.
Both forms are important, and we’ll find more information below.
How Tax Software Uses These Forms
Tax software makes filing your taxes easier by using the information on your W-2 and 1099 forms. These forms tell the software how much money you made and how much tax has already been paid.
Let’s walk through how it works with a simple example. Say you’re using a tax app like TurboTax or H&R Block.
The first thing it asks for is your W-2, which you get from your employer. This form shows your yearly income and any taxes that were already withheld, like federal income tax or Social Security.
For instance, if your W-2 says you earned $50,000 and your employer withheld $5,000 for federal taxes, you just type in those details (or even upload the form directly).
Now, the software gets to work.
It uses this information to determine your year’s total tax bill. If the software calculates that your tax liability is $4,500, it’ll let you know you’re getting a $500 refund because you already paid $5,000.
But let’s say you also did some freelance work and earned an extra $10,000.
You’d get a 1099-NEC from the client, showing that income. Unlike your W-2, no taxes were taken out of this money. When you enter the 1099 into the software, it adds this to your total income and recalculates your tax liability.
Now, instead of $50,000, your total income is $60,000, and your tax bill might increase to $7,000. Since you’ve only paid $5,000 so far, you’d owe $2,000.
Here’s the best part: the software helps you find ways to lower that bill.
For example, if you’re eligible for a home office deduction because of your freelance work, it’ll walk you through claiming it. Deductions like this reduce your taxable income and could save you money.
The software also checks everything for mistakes before you file. It makes sure every dollar you earned is accounted for and every deduction or credit is applied. This way, you avoid overpaying or underpaying your taxes.
Why These Forms Are Important
Here’s why W-2 and 1099 forms are so important:
1. They Show You Exactly How Much You Made
Your W-2 form is for regular employees, while the 1099 form is for freelancers and those with side gigs. These forms lay out all the money you earned over the year, so you don’t have to guess when to file your taxes.
It’s all right there in black and white.
2. They Keep Track of the Taxes You’ve Already Paid
The W-2 form will show you how much your employer has taken out for taxes throughout the year, while the 1099 form might not have any tax withheld.
If that’s the case, you’ll need to pay those taxes yourself.
Having these forms helps tax software understand what’s already been paid and what you might owe—or if you’re getting a refund.
Related: What Happens If You Don’t File Your Taxes but Don’t Owe Anything
3. They Power Accurate Tax Calculations
Tax software relies on the information from your W-2 and 1099 forms to do the math correctly. When you plug those numbers into the software, it can figure out your income, how much tax you owe, and whether you’re getting a refund.
Without these forms, you’re pretty much flying blind.
4. They Help You Avoid Mistakes
Without your W-2 or 1099 forms, it’s easy to make errors. Like forgetting a source of income or miscalculating your taxes. These mistakes can cause delays and problems when it comes to your tax return.
Using these forms with your tax software helps catch those errors and make sure everything’s accurate.
What Happens If You Don’t Have Them?
Not having your W-2 or 1099 forms when it’s time to do your taxes can lead to a few headaches.
Let’s break it down:
⦿ You Can’t File Your Taxes Correctly
Without these forms, you don’t have the key details—like your income and taxes already paid—that tax software or the IRS need.
This means your tax return could end up incomplete or full of errors.
⦿ Your Refund Could Be Delayed
If you’re due a tax refund, not having these forms means you can’t file your taxes on time, which delays any money coming your way.
The IRS won’t process your return without accurate information, and guesswork isn’t enough.
⦿ You Risk Paying Penalties
Filing late because you’re missing forms could lead to penalties, especially if you owe taxes. The IRS charges interest on unpaid taxes, so the longer you wait, the more you might have to pay.
⦿ You Might Miss Income Sources
If you have multiple jobs or freelance gigs, forgetting a source of income because you don’t have the forms could lead to issues later.
The IRS has a copy of every W-2 and 1099 issued to you, and if your filing doesn’t match, you could face an audit.
⦿ It’s Harder to Prove Your Income
If you’re self-employed or work multiple gigs, these forms are your proof of income. Not having them makes it harder to show exactly how much you earned, which can cause problems for accurate tax filing.
Ways of Getting Your W-2 and 1099 Forms
There are easy steps to ensure you have these important documents ready during tax season.
➡ Reach Out to Your Employer or Client
The first step for employees is to check with your employer. Employers are required to send out W-2 forms by the end of January. If you haven’t received yours, a quick email or phone call can resolve the issue.
Freelancers or contractors, on the other hand, should contact clients who paid them $600 or more to obtain their 1099 forms.
➡ Use PaystubHero for Instant Access
PaystubHero is fantastic for getting instant W-2 and 1099 forms for both employees and employers. Employers can use it to create and provide accurate, professional 1099 and W-2 forms for their employees, ensuring everyone has what they need to file taxes on time.
Again, a 1099 form doesn’t have to come from employers only—you, as a contractor, can generate it easily and instantly.
How PaystubHero Helps
PaystubHero makes creating W-2 and 1099 forms easy. Employers can easily generate W-2s for their team, ensuring all the important details like income and taxes withheld are accurate.
For freelancers and contractors, PaystubHero simplifies 1099 creation, helping you track income from multiple clients without the hassle.
Why choose PaystubHero? It’s quick, easy, and accurate—perfect for everyone, whether you’re managing a business or working independently.
FAQs
Here are some common questions about why it’s necessary to have a W-2 or 1099 form when using tax preparation software.
