Employer issued both W2 and 1099 forms - is this legal?

So my husband just got something weird from his job. He's been with the same company for 3 years now, and always just received a W2 like normal. But this year, they suddenly gave him both his regular W2 AND a 1099 form. When he asked his manager about it, they claimed the 1099 was for the quarterly recognition awards he won (gift cards) and prizes from their summer picnic raffle where employees could win various items. This seems really sketchy to me. I've never heard of an employer giving a W2 employee a 1099 for company events and recognition programs. Aren't those supposed to be de minimis fringe benefits or something? The total amount on the 1099 is about $840. Has anyone dealt with this before? Is this even legal or are they trying to shift tax burden onto employees? I'm thinking of reporting this somewhere but not sure where to start. Any advice would be appreciated!

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19 comments

Miguel Silva

•8M

This is actually fairly common, though I understand why it feels sketchy. Here's what's happening: The W-2 covers regular wages and salary, while the 1099 is being used for non-wage compensation. The IRS does allow de minimis fringe benefits to be excluded from income (small holiday gifts, occasional meals, etc.), but there are dollar limits. Anything above those limits becomes taxable income. Cash awards, gift cards, and prizes with significant value ($100+) generally need to be reported as income. Many employers choose to put these on a 1099 rather than including them on the W-2 to keep tracking systems separate. Your husband should check the 1099 amount against what he actually received in prizes/awards. If it's reasonably accurate, it's probably legitimate. If the amount seems way off, then you might want to ask for an itemized list of what's included.

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Miguel Silva

•8M

The general rule is that cash and cash equivalents (like gift cards) are always taxable, regardless of amount. For non-cash gifts and awards, the threshold where they become taxable is typically $25-75 depending on the specific circumstances. For the $50 gift cards, those would definitely be taxable income. The tablet valued at $300 would also be taxable. You're right that many employers simply add these amounts to the W-2 as "other compensation" rather than issuing a separate 1099, but either approach is technically compliant with tax regulations. The separate 1099 might be their accounting department's preference for tracking different types of compensation.

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Zainab Ismail

•8M

I went through something similar last year with prizes from our company's safety program. I was totally confused by the extra tax forms but found that taxr.ai https://taxr.ai was super helpful in figuring out how to properly report both forms. I uploaded both my W-2 and 1099, and the system automatically identified the issue and explained exactly how to handle it in TurboTax. It even pointed out that my employer had classified the income incorrectly on the 1099-MISC when it should have been on a 1099-NEC since these were prizes/awards not miscellaneous income.

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Zainab Ismail

•8M

The basic document analysis to identify issues is available without any payment - it'll tell you what forms you have and any potential problems. I only needed that part to understand what was happening with my forms. The system actually lets you create a record of what you believe the correct amounts should be. In my case, I listed all the prizes I received with approximate values, and it created a document showing the discrepancy. You can use this as documentation if you need to contest the amount with your employer or explain things to the IRS. My employer had overvalued some items too.

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QuantumQuester

•8M

Just wanted to update - I took the advice about taxr.ai and it was super helpful! I uploaded both my W-2 and the suspicious 1099, and it immediately flagged that my employer was using the wrong 1099 form type for employee awards. The system generated a nice explanation document that helped me talk to our payroll department about the issue. Turns out they were new to handling these awards and had made some classification errors. They're now reissuing the correct documentation and going to handle it properly next year by including it on the W-2 instead of separate forms. Saved me a ton of headache trying to figure out how to file with mismatched forms!

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Yara Nassar

•8M

If you're getting nowhere with your employer on this, you might need to talk directly with the IRS. I spent THREE WEEKS trying to get through to a human at the IRS about a similar issue last year. Finally discovered Claimyr https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that while employers can issue both forms, there are specific rules about what belongs on each. For example, employee awards should typically be included on W-2s as "other compensation" rather than separate 1099s unless they're over certain thresholds or part of specific programs.

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Yara Nassar

•8M

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Paolo Ricci

•8M

Wanted to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway since I was desperate about my own tax issue with multiple income forms. It actually worked exactly as described. I got a call back in about 35 minutes connecting me to an IRS representative who was incredibly helpful. She confirmed that my employer was incorrectly issuing 1099s for what should have been W-2 supplemental wages. The agent explained I should request a corrected W-2 from my employer that includes ALL compensation. She also gave me steps to follow if the employer refuses to correct the forms. Honestly saved me hours of frustration and gave me clear direction on how to proceed.

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Amina Toure

•8M

I'm an accountant and see this frequently. Your employer is likely trying to avoid paying their share of FICA taxes (Social Security and Medicare) on those awards/prizes. When they put it on a 1099 instead of a W-2, they don't have to pay the employer portion of those taxes. This is generally not correct for employees. If someone is already your W-2 employee, most supplemental wages should be reported on the W-2, not a separate 1099. There are very few exceptions to this rule.

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Amina Toure

•8M

Yes, in most cases this is incorrect. You could start by having your husband speak with the payroll or HR department and politely explain that supplemental wages for employees should generally be included on the W-2. If they're a small company, they might genuinely not know better. If they refuse to correct it, you can report potential tax issues to the IRS using Form 3949-A "Information Referral." However, I'd try resolving it directly with the employer first. Sometimes this is just a misunderstanding rather than deliberate tax avoidance.

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Rachel Tao

•4M

This is a really helpful thread! I'm dealing with a similar situation where my employer gave me a 1099 for what they called "performance incentives" but I'm a regular W-2 employee. Based on what everyone's saying here, it sounds like they should have included these on my W-2 instead. I'm going to try the approach mentioned about talking to payroll first before escalating anywhere. Has anyone had success getting their employer to reissue corrected forms mid-tax season? I'm worried about filing deadlines but also don't want to file incorrectly if my employer is supposed to fix this.

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