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How Your W-2 Works

        Money | Taxes

Other Tax Forms

The W-2 may be the most common tax form, but it is far from the only one that individuals and businesses may need to be familiar with. The federal government taxes everything from ordinary employment pay and returns on the sale of stock to income from rental properties and agricultural transactions. If you make money during the year, there is probably a corresponding tax form waiting for you to fill it out.

It all begins with the W-4. This is the form that workers complete to determine how much money should be withheld from their paychecks to cover estimated taxes. The form allows workers to have their withholdings altered based on the number of dependents they claim and to increase withholdings to cover non-taxed earnings from other sources [source: IRS].

In order to get money back from the IRS at the end of the year – or at least avoid being penalized – you also have to file a tax return by April 15. For most folks, that return is a Form 1040, a 1040A, a 1040-ES or a 1040EZ. These documents are completed by a taxpayer or professional and are designed to give a fairly detailed snapshot of the person's income, deductions and credits for the year. Some of that information comes directly from the W-2 or a 1099-MISC [source: IRS].

The 1099-MISC comes into play for self-employed workers and those who have been deemed independent contractors. These workers generally don't have taxes withheld from their earnings and may need to pay estimated taxes on a quarterly basis. The 1099-MISC tracks "nonemployee compensation," as well as income from rent, royalties and the sale of consumer goods [source: IRS].

Rather than completing a W-4, workers and self-employed individuals who receive a 1099-MISC at the end of the year will likely need to complete a W-9 for any individual or entity with which they do business. This "Request for Taxpayer Identification Number and Certification" provides certain info that the receiver uses to later complete and file a 1099 [source: IRS].