A W-2 employee is someone who works directly for a company and is considered a regular employee under the law.
Characteristics of a W-2 Employee include:
- Works for one employer (usually long-term or ongoing)
- Receives a regular paycheck with taxes already taken out
- Employer controls the work (schedule, tools, how it’s done)
- May be full-time or part-time
- Eligible for benefits like health insurance, PTO, 401(k), etc.
- Receives a W-2 form at tax time showing total earnings and withholdings
As a W-2 employee, your federal income tax and state income tax will be withheld by the employer automatically. Also, your portion of the employment tax, namely social security tax (6.2%) and the Medicare tax (1.45%), will be withheld and remitted by the employer. Your employer will pay for the other half of the social security and medicare taxes.
A 1099 independent contractor is someone who works for themselves, not as an employee of a company.
- Characteristics of a 1099 Worker include:
- Self-employed or a freelancer/contractor
- Hired for specific jobs, gigs, or projects
- Controls their own schedule and methods
- Uses their own tools or equipment
- Not on payroll—no benefits or tax withholding
- Gets a 1099-NEC form if paid $600+ by a client
As a 1099 independent contractor, you are responsible for paying income taxes and self-employment taxes (15.3%) yourself. Nevertheless, you can reduce your tax burden by deducting qualified business expenses, such as home office expenses, mileage or vehicle costs, and health insurance premiums.