TaxWrenTax glossary · Updated
W-2 vs. 1099: employee vs. contractor taxes
Short answer
A W-2 reports wages from an employer, who withholds tax and pays half of Social Security and Medicare. A 1099-NEC reports pay to an independent contractor, who pays the full 15.3% self-employment tax and makes estimated payments.
A Form W-2 means you are an employee; a Form 1099-NEC means you were paid as an independent contractor. The difference changes who pays Social Security and Medicare, whether tax is withheld, and which expenses you can deduct.
Side by side
| W-2 employee | 1099 contractor | |
|---|---|---|
| Social Security and Medicare | 6.2% + 1.45% withheld; the employer pays the same again | 15.3% self-employment tax on 92.35% of profit, half of it deductible |
| Income tax | Withheld from each paycheck (Form W-4) | Paid yourself in quarterly estimated payments |
| Business expenses | Generally not deductible (unreimbursed employee expenses) | Deductible on Schedule C |
| Extra deduction | None | QBI deduction of up to 20% of profit |
| Benefits and protections | Often health insurance, 401(k) match, unemployment insurance | None from the client; your own retirement plan (SEP IRA, solo 401(k)) |
Example: $60,000 as W-2 pay or 1099 profit (2026)
Single filer, no other income, standard deduction, federal taxes only:
| W-2 | 1099 | |
|---|---|---|
| Social Security and Medicare you pay | $4,590 | $8,478 |
| Federal income tax | $5,020 | $3,559 |
| Total | $9,610 | $12,037 |
| Paid by the employer on top | $4,590 | — |
The contractor's income tax is lower because half of the self-employment tax ($4,239) and the QBI deduction ($7,932) reduce taxable income, but the extra payroll tax outweighs it. A contractor's rate should cover that gap, plus the benefits an employee gets. Model your own numbers in the 1099 tax calculator.
Employee or contractor?
The form you receive should follow the facts of the job, not the other way around. The IRS looks at three groups of facts: behavioral control (does the business control what you do and how?), financial control (who pays expenses, can you make or lose money, do you work for others?) and the relationship (benefits, a contract, whether the work is a key part of the business). If you think you were misclassified, the IRS explains how to ask it to decide (Form SS-8).
Work it out
Related terms
- Form W-2
- The form your employer gives you showing your wages for the year and the federal, state, Social Security and Medicare taxes withheld from them.
- Form 1099-NEC
- The form a business uses to report what it paid you for work as an independent contractor (nonemployee compensation). No tax is withheld, so you pay income tax and self-employment tax yourself.
- Self-employment tax
- Social Security and Medicare tax for people who work for themselves: 15.3% on 92.35% of net profit, with the Social Security part stopping at the wage base. Half of it is deductible.
Frequently asked questions
What is the difference between W-2 and 1099?
A W-2 reports wages paid to an employee: the employer withholds income tax and pays half of Social Security and Medicare. A 1099-NEC reports payments to an independent contractor: nothing is withheld, and the contractor pays income tax and the full self-employment tax.
Do you pay more taxes on 1099 than W-2?
Usually yes, because a contractor pays both halves of Social Security and Medicare. On $60,000 in 2026, a single W-2 employee owes $9,610 of federal income and payroll tax; a contractor with $60,000 of profit owes $12,037, partly offset by deducting half of the self-employment tax and the qualified business income deduction. Contractors can also deduct business expenses.
How much should I set aside for taxes on 1099 income?
Enough for federal income tax, self-employment tax and any state tax on your profit; the 1099 tax calculator gives a percentage for your income and state. Pay it in quarterly estimated payments to avoid an underpayment penalty.
Who decides if I am an employee or a contractor?
Not the label in your contract. The IRS looks at whether the business has the right to control what you do and how you do it (behavioral control), the financial side of the job (financial control) and how the parties see their relationship (benefits, permanence, key activity of the business).
Sources: IRS, Independent contractor (self-employed) or employee?; IRS Topic 762, Independent contractor vs. employee; IRS Topic 554. Figures come from our tax data files; see the methodology. All terms: tax glossary.