1099 to W2 Tax Guide: What Contractors and Employees Need to Know

Understanding the tax differences between 1099 independent contractors and W-2 employees is essential for accurate income planning.

Self-Employment Tax

1099 contractors pay self-employment (SE) tax of 15.3% on 92.35% of net self-employment income. This covers Social Security and Medicare. W-2 employees pay only 7.65% through payroll withholding.

Tax Deductions for 1099

Independent contractors can deduct business expenses, half of SE tax, self-employed health insurance premiums, and may qualify for the Qualified Business Income (QBI) deduction.

W-2 Employee Benefits

W-2 employees often receive health insurance, retirement matching, paid time off, and other benefits that should be included in total compensation comparisons.

Quarterly Estimated Taxes

1099 contractors usually must pay quarterly estimated taxes to the IRS, while W-2 employees have taxes withheld each paycheck.