1099 Contractor Vs. W2 Employee: Know The Difference

Choosing to hire a 1099 independent contractor or a full-time W2 employee is a big decision. Each choice has massive implications in regards to business taxes, payroll, and more. While there are many rules involved in this hiring decision, here's a basic overview of the difference you should know between the two.

If the person you hired is an employee, as their employer you must:

1. Withhold payroll taxes

• Payroll taxes include Income and Social Security taxes

2. Match the employee's Social Security and Medicare taxes

3. Pay federal and state unemployment taxes on employee earnings

4. Create and send a W-2 Form at the end of the fiscal year

If the person you hired is a 1099 independent contractor, you:

1. ARE NOT required to withhold payroll taxes

2. DO NOT match the employee's Social Security and Medicare taxes

3. DO NOT pay federal and state unemployment taxes on employee earnings

4. Send your independent contractor a Form 1099-MISC at the end of the fiscal year

Still need help identifying the difference between a W-2 employee or 1099 contractor?

We recommend you always refer to IRS guidelines to determine what classification your worker is. For more information on 1099 contractors vs. W2 employees, refer to the following IRS guidelines.

Please Note: The purpose of this content is purely informational. It should not be considered legal, accounting, or tax advice.