W-2 vs. 1099: What Every Athlete Needs to Know

As tax season rolls around, you may notice people receiving different tax forms depending on how they work. The two most common are the W-2 and the 1099 - and knowing the difference is a big deal.

The Basics

Simply put, if you're an employee with a regular job, your employer will send you a W-2. On the other hand, if you are an independent contractor - such as a freelancer or a college athlete with an NIL deal - you'll receive a 1099 instead.

Key Differences

With a W-2, your employer handles your taxes for you. They automatically withhold a portion of each paycheck to cover federal income tax. In January, you'll receive a form showing exactly what you earned and what was already paid to the IRS. Easy.

With a 1099, nobody else is setting money aside for you. That $5,000 you made off a brand deal? You have to calculate and pay those taxes yourself - or risk getting in serious trouble with the IRS.

Important: Non-cash compensation counts as taxable income too. If you receive $10,000 worth of golf clubs, you'll owe taxes on that value even though you never saw a dollar.

How It All Comes Together

Eventually, both the W-2 and 1099 feed into your Form 1040 - the main income tax return that everyone files with the IRS.

The Bottom Line

Know which form you're getting so you can be prepared. If you're on a W-2, you don't have much to do beyond filing your return. If you're on a 1099, plan ahead and set money aside - you don't want any surprises as the April deadline approaches.

In the end, the amount of tax you owe depends on how much you earn. But for lower incomes, your tax liability can be quite small - sometimes even $0 - thanks to what's known as the standard deduction.

Written by Matthew Park, LRF Intern & Contributor