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1099 vs. W-2: Breaking Down the Differences
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do not influence our editors’ opinions or ratings1099 vs. W-2: Breaking Down the Differences
The 1099 vs. W-2 divide involves differences in job duties and tax implications. Here’s what to know, whether you’re a worker or an employer.
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Sam Taube writes about investing for NerdWallet. He has covered investing and financial news since earning his economics degree from the University of Maryland in 2016. Sam has previously written for Investopedia, Benzinga, Seeking Alpha, Wealth Daily and Investment U, and has worked as an editor for Investment U, Wealth Daily and Haven Investment Letter. He is based in Brooklyn, New York. Published in Lead Writer + more + more
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Sabrina Parys is an editor and content strategist on the taxes and investing team at NerdWallet, where she manages and writes content on personal income taxes. Her previous experience includes five years as a copy editor and associate editor in academic and educational publishing. She is based in Brooklyn, New York. Published in Editor & Content Strategist + more + moreTable of Contents
What is a 1099 form? What is a 1099 form? What is a W-2 form? What is a W-2 form? 1099 contractors vs. W-2 employees 1099 contractors vs. W-2 employees 1099 taxes vs. W-2 taxes 1099 taxes vs. W-2 taxes Misclassifying W-2 employees as 1099 workers Misclassifying W-2 employees as 1099 workersTable of Contents
What is a 1099 form? What is a 1099 form? What is a W-2 form? What is a W-2 form? 1099 contractors vs. W-2 employees 1099 contractors vs. W-2 employees 1099 taxes vs. W-2 taxes 1099 taxes vs. W-2 taxes Misclassifying W-2 employees as 1099 workers Misclassifying W-2 employees as 1099 workersThere are two main categories of work in the eyes of the IRS: 1099 contractors and W-2 employees. These two types of work involve different tax forms and come with different tax obligations for employers and workers.
There are two main categories of work in the eyes of the IRS: 1099 contractors and W-2 employees. These two types of work involve different tax forms and come with different tax obligations for employers and workers.Generally speaking, W-2 employees have taxes withheld from their paychecks by their employer, while 1099 contractors are responsible for paying taxes on their own
Generally speaking, W-2 employees have taxes withheld from their paychecks by their employer, while 1099 contractors are responsible for paying taxes on their ownThe difference between 1099 work and W-2 work also depends on the nature of the employment relationship, and there are strict rules about which kinds of workers can be given each classification. Here’s what to know.
The difference between 1099 work and W-2 work also depends on the nature of the employment relationship, and there are strict rules about which kinds of workers can be given each classification. Here’s what to know.What is a 1099 form?
What is a 1099 form?1099 workers get that name from the 1099-NEC tax form they receive from their employer(s) each January or February.
1099 workers get that name from the 1099-NEC tax form they receive from their employer(s) each January or February.The form lists the amount of nonemployee compensation they received from a particular employer. 1099 forms typically show the gross amount paid in the previous year since the employer does not withhold tax unless the worker is subject to backup withholding.
The form lists the amount of nonemployee compensation they received from a particular employer. 1099 forms typically show the gross amount paid in the previous year since the employer does not withhold tax unless the worker is subject to backup withholding.The employer (or “payer,” in tax jargon) sends the 1099 form to the IRS and also provides workers with a copy to help them determine their total income (and income tax liability) when filing their annual income tax return.
The employer (or “payer,” in tax jargon) sends the 1099 form to the IRS and also provides workers with a copy to help them determine their total income (and income tax liability) when filing their annual income tax return. AD Get reliable back tax relief with our team of A+ rated tax professionals Trusted & Top-Rated Nationwide — 4.9★ Google rating. Learn moreon Priority Tax Relief's website
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What is a W-2 form?
What is a W-2 form?W-2 employees are so named because their employers send them a W-2 form at the beginning of each year, listing their compensation from the previous year and the amount of income tax withheld.
W-2 employees are so named because their employers send them a W-2 form at the beginning of each year, listing their compensation from the previous year and the amount of income tax withheld.Employees who earned $600 or more in the previous year get one and use it to complete their tax returns. A W-2 form also contains additional information that isn’t applicable to a 1099 worker, including pre-tax payroll deductions such as 401(k) contributions and employer-sponsored health insurance plan costs.
Employees who earned $600 or more in the previous year get one and use it to complete their tax returns. A W-2 form also contains additional information that isn’t applicable to a 1099 worker, including pre-tax payroll deductions such as 401(k) contributions and employer-sponsored health insurance plan costs.Like 1099 forms, employers send a copy of a W-2 form to both the IRS and the employee.
Like 1099 forms, employers send a copy of a W-2 form to both the IRS and the employee.1099 contractors vs. W-2 employees
1099 contractors vs. W-2 employeesThe IRS provides rules for classifying 1099 versus W-2 work. The guidelines are divided into three categories: behavioral, financial and type of relationship.
The IRS provides rules for classifying 1099 versus W-2 work. The guidelines are divided into three categories: behavioral, financial and type of relationship.Behavioral. Typically, W-2 employers have the right to control how, where and when a worker does their job — for example, by mandating certain working hours, making a worker come into an office or providing specific tools for the job. 1099 employers don’t have this kind of control, and can only set deliverables and deadlines.
Behavioral. Behavioral. Typically, W-2 employers have the right to control how, where and when a worker does their job — for example, by mandating certain working hours, making a worker come into an office or providing specific tools for the job. 1099 employers don’t have this kind of control, and can only set deliverables and deadlines.Financial. W-2 employment generally means work for a regular paycheck (subject to minimum wage and overtime laws), while 1099 work can involve one-off or irregular payments at any pay rate. W-2 employees are also often reimbursed for work-related expenses, while 1099 workers are usually responsible for their own expenses.
Financial. Financial. W-2 employment generally means work for a regular paycheck (subject to minimum wage and overtime laws), while 1099 work can involve one-off or irregular payments at any pay rate. W-2 employees are also often reimbursed for work-related expenses, while 1099 workers are usually responsible for their own expenses.Type of relationship. W-2 employment may come with benefits and often has an indefinite timeframe. 1099 work, on the other hand, generally doesn’t come with benefits and may be limited to a specific timeframe or the completion of a specific project.
Type of relationship. Type of relationship. W-2 employment may come with benefits and often has an indefinite timeframe. 1099 work, on the other hand, generally doesn’t come with benefits and may be limited to a specific timeframe or the completion of a specific project.If a business is having trouble determining whether a worker should be classified as 1099 or W-2, it can submit Form SS-8 to the IRS and let the agency decide
If a business is having trouble determining whether a worker should be classified as 1099 or W-2, it can submit Form SS-8 to the IRS and let the agency decide Internal Revenue Service. Independent Contractor (Self-Employed) Or Employee?. Accessed Aug 14, 2024. .Examples of W-2 employees
Examples of W-2 employeesAs discussed previously, W-2 workers are typically people who have to show up to a workplace and/or have set working hours. They typically receive a regular paycheck with income tax withheld and may also get benefits.
As discussed previously, W-2 workers are typically people who have to show up to a workplace and/or have set working hours. They typically receive a regular paycheck with income tax withheld and may also get benefits.A non-exhaustive list of jobs that are typically classified as W-2:
A non-exhaustive list of jobs that are typically classified as W-2:Office and factory workers.
Office and factory workers.Waiters, cooks and retail associates.
Waiters, cooks and retail associates.Health care workers in hospitals or clinics.
Health care workers in hospitals or clinics.Most government employees.
Most government employees.Maintenance workers who work for a business, such as janitors.
Maintenance workers who work for a business, such as janitors.Examples of 1099 contractors
Examples of 1099 contractors1099 workers generally set their own hours and work conditions and may be paid on a one-time or sporadic basis. They generally don’t get benefits or income tax withholding. This kind of worker includes, but is not limited to:
1099 workers generally set their own hours and work conditions and may be paid on a one-time or sporadic basis. They generally don’t get benefits or income tax withholding. This kind of worker includes, but is not limited to:Freelance writers, graphic designers and other creative workers.
Freelance writers, graphic designers and other creative workers.Sole-proprietor tradespeople such as handymen.
Sole-proprietor tradespeople such as handymen.Individual consultants.
Individual consultants.Private tutors.
Private tutors.Gig-economy workers such as delivery and ride-share drivers.
Gig-economy workers such as delivery and ride-share drivers.» MORE: A guide for filing taxes with a side hustle
» MORE: » MORE: A guide for filing taxes with a side hustle1099 taxes vs. W-2 taxes
1099 taxes vs. W-2 taxesWithholding isn’t the only tax difference between 1099 work and W-2 employment. The two types of relationships have very different implications for tax due dates, Social Security and Medicare taxes and federal unemployment insurance — for both workers and employers.
Withholding isn’t the only tax difference between 1099 work and W-2 employment. The two types of relationships have very different implications for tax due dates, Social Security and Medicare taxes and federal unemployment insurance — for both workers and employers.Tax implications for workers
Tax implications for workersAs discussed, the biggest difference between 1099 work and W-2 work, from a worker’s perspective, is the lack of tax withholding for 1099 work.
As discussed, the biggest difference between 1099 work and W-2 work, from a worker’s perspective, is the lack of tax withholding for 1099 work.While an employer handles tax withholding for a W-2 worker, remitting taxes to the IRS on the employee’s behalf, 1099 workers are responsible for paying taxes on their own.
While an employer handles tax withholding for a W-2 worker, remitting taxes to the IRS on the employee’s behalf, 1099 workers are responsible for paying taxes on their own.This means 1099 workers may need to pay estimated taxes quarterly if they have a significant amount of 1099 income in order to avoid a large tax bill or an underpayment penalty in April. If their 1099 work totals $400 or more, they may also owe self-employment tax, which is a combination of Social Security and Medicare taxes
This means 1099 workers may need to pay estimated taxes quarterly if they have a significant amount of 1099 income in order to avoid a large tax bill or an underpayment penalty in April. If their 1099 work totals $400 or more, they may also owe self-employment tax , which is a combination of Social Security and Medicare taxes Internal Revenue Service. Self-Employed Individuals Tax Center. Accessed Aug 14, 2024. .But there are some tax-related upsides of being classified as a 1099 worker, including a variety of tax deductions that are not available to W-2 employees. These include certain unreimbursed business and home office expenses — and in some cases, even health care expenses.
But there are some tax-related upsides of being classified as a 1099 worker, including a variety of tax deductions that are not available to W-2 employees. These include certain unreimbursed business and home office expenses — and in some cases, even health care expenses.Another tax-related difference between 1099 work and W-2 work is which form each worker fills out at the beginning of their employment. 1099 workers fill out Form W-9 when starting a new job, while W-2 employees fill out Form W-4.
Another tax-related difference between 1099 work and W-2 work is which form each worker fills out at the beginning of their employment. 1099 workers fill out Form W-9 when starting a new job, while W-2 employees fill out Form W-4 .» Learn more about self-employment tax deductions
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Tax implications for businesses
Tax implications for businessesThere’s a big difference in the amount of tax-related work a business has to do for 1099 contractors compared with W-2 employees.
There’s a big difference in the amount of tax-related work a business has to do for 1099 contractors compared with W-2 employees.Businesses usually have to withhold at least some of a W-2 employee’s federal and state income tax from their paychecks, depending on what level of withholding the employee chose on their W-4. They also generally must withhold the employee-paid portion of the FICA tax.
Businesses usually have to withhold at least some of a W-2 employee’s federal and state income tax from their paychecks, depending on what level of withholding the employee chose on their W-4. They also generally must withhold the employee-paid portion of the FICA tax .Employers also have to pay certain taxes for W-2 employees. These include the employer portion of the Social Security and Medicare tax, as well as the federal unemployment insurance (FUTA) tax
Employers also have to pay certain taxes for W-2 employees. These include the employer portion of the Social Security and Medicare tax, as well as the federal unemployment insurance (FUTA) tax Internal Revenue Service. Understanding Employment Taxes. Accessed Aug 14, 2024. .Businesses don’t have to withhold taxes from payments to 1099 workers unless a worker is subject to backup withholding according to their W-9. Payments to 1099 workers don’t generate any FUTA tax liability for businesses, as 1099 workers generally aren’t eligible for unemployment insurance. They also don’t generate any employer-side Social Security or Medicare tax liability, as 1099 workers pay these taxes themselves, in full, through the self-employment tax.
Businesses don’t have to withhold taxes from payments to 1099 workers unless a worker is subject to backup withholding according to their W-9. Payments to 1099 workers don’t generate any FUTA tax liability for businesses, as 1099 workers generally aren’t eligible for unemployment insurance. They also don’t generate any employer-side Social Security or Medicare tax liability, as 1099 workers pay these taxes themselves, in full, through the self-employment tax.In short, a business’s tax responsibilities for a 1099 worker usually consist solely of collecting a W-9 at the beginning of the job and then filing a 1099 form for each year of work as applicable. Like W-2 forms, 1099-NEC forms must be sent out to the worker and the IRS by Jan. 31.
In short, a business’s tax responsibilities for a 1099 worker usually consist solely of collecting a W-9 at the beginning of the job and then filing a 1099 form for each year of work as applicable. Like W-2 forms, 1099-NEC forms must be sent out to the worker and the IRS by Jan. 31.» Learn more: How tax withholding works
» Learn more: » Learn more: How tax withholding worksMisclassifying W-2 employees as 1099 workers
Misclassifying W-2 employees as 1099 workersGiven that 1099 relationships involve much less tax liability (and much less work) for businesses, employers may be tempted to say that onsite workers with set hours — in other words, W-2 employees — are 1099 workers, to save themselves some money and time. They may also be tempted to do this to skirt minimum wage and overtime laws for their workforce.
Given that 1099 relationships involve much less tax liability (and much less work) for businesses, employers may be tempted to say that onsite workers with set hours — in other words, W-2 employees — are 1099 workers, to save themselves some money and time. They may also be tempted to do this to skirt minimum wage and overtime laws for their workforce.Misclassifying employees can lead to serious legal consequences, including fines and penalties, repayment of all uncollected employment taxes, and in some severe cases, jail time.
Misclassifying employees can lead to serious legal consequences, including fines and penalties, repayment of all uncollected employment taxes, and in some severe cases, jail time.Employees who suspect that they are being misclassified can complain confidentially to the Department of Labor
Employees who suspect that they are being misclassified can complain confidentially to the Department of Labor U.S. Department of Labor. Misclassification of Employees as Independent Contractors Under the Fair Labor Standards Act. Accessed Aug 14, 2024. . Employees can also submit Form SS-8 to the IRS to force a decision between 1099 and W-2 status in an ambiguous situation.In some cases, employers who had a “reasonable basis” for misclassifying employees, or who want to reclassify ambiguous-status workers as W-2 employees to avoid future legal action, can enter into a settlement with the IRS that squares them with the law while granting partial relief from tax penalties. Check out the IRS pages on employment tax relief and the Voluntary Classification Settlement Program (VCSP), respectively, to learn more.
In some cases, employers who had a “reasonable basis” for misclassifying employees, or who want to reclassify ambiguous-status workers as W-2 employees to avoid future legal action, can enter into a settlement with the IRS that squares them with the law while granting partial relief from tax penalties. Check out the IRS pages on employment tax relief and the Voluntary Classification Settlement Program (VCSP) , respectively, to learn more.Helpful resources
Helpful resources Capital Gains Tax: Long and Short-Term Rates for 2025-2026 The 10 Rules of Tax-Loss Harvesting What Is Adjusted Gross Income (AGI)? Definition, How to Calculate More like this Taxes Mortgage Interest Tax Deduction: What Qualifies and How Much You might be able to deduct mortgage interest on your taxes if you itemize and follow a few other guidelines. Tina Orem Is Home Equity Loan Interest Tax-Deductible? You can deduct home equity loan or HELOC interest on your 2025 taxes as long as you used the proceeds in accordance with IRS rules. 2 By Taylor Getler, Robin Rothstein Tax Deductions for Homeowners in 2026 You can deduct mortgage interest, property taxes and other expenses up to specific limits if you itemize deductions on your tax return. 2 By Taylor Getler, Robin Rothstein Get started Get startedon Priority Tax Relief's website
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