taxes w2 vs 1099

W-2 employees need to complete a W-4 to get set up for income tax withholding. They also need to complete paperwork for enrollment in employer-sponsored benefits, such as health insurance, workers’ compensation or a 401. When it comes to payroll taxes, these are automatically deducted from a W-2 employee’s paycheck. You as the employer withhold income taxes and pay Social Security, Medicare taxes, and unemployment tax on wages paid.

taxes w2 vs 1099

It takes considerable time and expense to train an employee to do their job. Frequently the company employs full-time trainers to teach employees the 1099 vs w2 skills needed to carry out their duties successfully. And once the training is completed, a manager will be required to supervise the employee.


Having an employee on staff gives the employer the benefit of getting steady work done and fostering better company culture. Though they must offer competitive compensation, employers can count on good employees to be there and consistently churn out high-quality work.

To do so, you must withhold income tax and the employee portion of Social Security and Medicare taxes. Both employees and employers are subject to Medicare taxes and Social Security. From the first paycheck to the final payroll processed, that information populates Form W-2s. Form W-2s give employees an overview of their earned wages, any taxes withheld, and any deductions taken for items like retirement contributions or health insurance for that calendar year. As you can see, independent contractors have far more flexibility with their schedules, direction, and methods for accomplishing tasks. Meanwhile, employees usually exercise relatively little control over their own work and receive assignments from their managers.

vs. W-2 hiring process

A 1099 worker is a self-employed worker or independent contractor. Generally, businesses hire these workers to complete a specific task or work on a specific project as defined in a written contract. You may pay contractors a set amount, either hourly or by the project. Many contractors will outline their payment terms and rates in their contracts. 1099 contractors who get paid hourly may ask for a higher hourly rate than you pay your regular employees.

Is a 1099 considered a W-2?

No, these forms aren’t interchangeable. They’re used for the same purpose: as a statement of compensation for tax purposes. A 1099 is issued for contractors and a W-2 is issued for employees, who meet different criteria and have different tax implications per IRS regulations.

This guide will walk you through how the two differ, how to correctly classify your worker, and the consequences of misclassifying employees. Our Analytics and Reporting solution provides employee classification reports and reporting for common W-2 errors, so your information is always accurate and up to date. Determining which form to use and who to hire can help you meet your business needs. Once you review the information above, you can easily make compliance-conscious decisions. Independent contractors often advertise, maintain a visible business location, and work in the relevant market.

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