What's the difference between W-2 and 1099 work?

A W-2 worker is an employee: the employer withholds income tax and pays half of Social Security and Medicare. A 1099 worker is an independent contractor who gets paid in full and pays all of it, 15.3% self-employment tax plus income tax, on their own.

W-2 employees

Your employer withholds federal income tax and 7.65% for Social Security and Medicare from each paycheck, pays a matching share, and pays unemployment tax. Benefits like health insurance and a 401(k) usually come only with employee jobs.

1099 contractors

The business pays you the full amount with no tax withheld. You pay self-employment tax of 15.3% on 92.35% of your net profit, plus income tax, usually through quarterly estimated payments.

When you get a 1099 form

A business must send Form 1099-NEC when it pays a contractor $2,000 or more for services in a year, for payments made from 2026 on. Payment apps and online marketplaces send Form 1099-K when payments are over $20,000 in more than 200 transactions.

Contractors get some tax breaks

You can deduct business expenses, and you can deduct half of your self-employment tax when figuring adjusted gross income. That half deduction lowers income tax but not self-employment tax.

How the IRS tells them apart

The label on the offer letter doesn't decide your status. The IRS uses common-law rules in three groups. Behavioral control asks whether the company controls how you do the work. Financial control asks who pays for tools and expenses and whether you can make or lose money. The relationship asks about contracts, benefits and whether the work is central to the business.

No single factor decides it. If you set your own hours, use your own equipment and work for several clients, you look like a contractor. If a manager sets your schedule, trains you and you work for one company with no end date, you look like an employee.

The tax difference in plain numbers

On a W-2 job, Social Security and Medicare cost you 7.65% of your wages, and the employer pays the same amount on top. On a 1099 job, you pay both shares as self-employment tax: 12.4% for Social Security and 2.9% for Medicare, on 92.35% of your profit.

Income tax works the same way for both, using the same brackets. The difference is timing. Employees have it taken out of every paycheck. Contractors have to send it in themselves during the year, or face a bill and possibly an underpayment penalty in April.

What else changes besides tax

Employees often get health insurance with the employer paying part of the premium, paid time off, a retirement plan with a match and workers' compensation. Employees who lose a job through no fault of their own can usually apply for unemployment benefits. Contractors usually get none of these and pay for their own coverage.

Contractors get more control: choosing clients, setting rates and deducting business costs. They can also open their own retirement plan, which can allow large contributions when profit is high.

Comparing a 1099 offer with a W-2 offer

Start with the extra payroll tax. Then put a price on the benefits you would lose: what the employer pays toward health insurance, any 401(k) match and paid days off. Add those up and compare the totals, not the headline pay.

Also count expenses the contractor pays and an employer would cover, like a laptop, phone or mileage. Those costs are deductible, which softens them, but they still come out of your pocket first.

If you think you are misclassified

If you are treated as a contractor but work like an employee, either you or the business can file Form SS-8 to ask the IRS to decide. The IRS says this usually takes at least six months.

Workers who believe they were misclassified can use Form 8919 to pay only the employee share of Social Security and Medicare tax on those wages, instead of full self-employment tax. Talk to the business first, since some mistakes get fixed with a simple conversation.