Understanding W-2 vs 1099 Income

W-2 vs. 1099 Income

W-2 Employee

• Employer withholds federal and state income taxes
• Employer pays half of Social Security (6.2%) and Medicare (1.45%) taxes
• You receive a W-2 form by January 31
• Benefits may include health insurance, retirement plans

1099 Independent Contractor

• No tax withholding — you're responsible for all estimated taxes
• You pay the full 15.3% self-employment tax (both employee and employer portions)
• You can deduct business expenses to reduce taxable income
• You receive a 1099-NEC if paid $600 or more by a single payer

The Tax Cost of 1099 Income

On $50,000 of income:

• W-2 employee: ~$3,825 in FICA taxes
• 1099 contractor: ~$7,065 in self-employment tax

But the 1099 contractor can deduct half of self-employment tax and claim business deductions.

Worker Classification

The IRS has rules about whether a worker should be classified as an employee or contractor. Misclassification can result in back taxes and penalties for employers.

IRS Form SS-8

Workers who believe they're being misclassified as contractors can file Form SS-8 to request an IRS determination.

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Unsure about your classification? We can help you understand your tax obligations and structure.