Archive: March 9, 2024

Although these forms are called information returns, they serve different functions.

Employers use Form W-2, Wage and Tax Statement to:

  • Report wages, tips, or other compensation paid to an employee.
  • Report the employee’s income, Social Security, and Medicare taxes withheld and other information.

Employers furnish the Form W-2 to the employee and the Social Security Administration (SSA). The SSA shares the information with the Internal Revenue Service.

Payers use Form 1099-MISC, Miscellaneous Information and/or Form 1099-NEC, Nonemployee Compensation to:

  • Report any amount of federal income tax withheld under the backup withholding rules (Form 1099-MISC or Form 1099-NEC).
  • Report payments of $10 or more made in the course of a business in royalties or broker payments in lieu of dividends or tax-exempt interest (Form 1099-MISC).
  • Report payments of $600 or more made in the course of a business in rents, prizes and awards, other income and for other specified purposes, including gross proceeds paid to an attorney (Form 1099-MISC).
  • Report payments of at least $600 in the course of a business to a person who’s not an employee for services, including payments to an attorney (Form 1099-NEC).
  • Report sales totaling $5,000 or more of consumer products to a person on a buy-sell, a deposit-commission, or other commission basis for resale (Form 1099-MISC or Form 1099-NEC).

Payers file Forms 1099-MISC and 1099-NEC with the IRS and provide them to the person or business that received the payment.

According to IRS, to claim your child as your dependent, your child must meet either the qualifying child test or the qualifying relative test:

  • To meet the qualifying child test, your child must be younger than you or your spouse if filing jointly and either younger than 19 years old or be a “student” younger than 24 years old as of the end of the calendar year.
  • There’s no age limit if your child is “permanently and totally disabled” or meets the qualifying relative test.

In addition to meeting the qualifying child or qualifying relative test, you can claim that person as a dependent only if these three tests are met:

  1. Dependent taxpayer test
  2. Citizen or resident test, and
  3. Joint return test

Taxable income can include payments you receive from:

  • Employment: Wages & employee benefits include in form w-2
  • Self-employment on Gig jobs: Uber, lyft, Frelance, independent jobs, Renting property, etc..
  • Businesses: Partnerships or other Businesses entities
  • Investments: Capital gains, Stocks options, trades Interest, Dividents, Crypto currency.
  • Benefits paid to you: Retirement, SSN income, Unemployment benefits.