1099 vs W-2: 5 key differences

Control over the work and IRS classification

Control over the work is what the IRS uses to decide whether you are 1099 or W-2: the IRS looks at the whole relationship under the common-law rules, not at the form the company chooses to send.⁴ The IRS groups the evidence into three categories.

States and the Department of Labor run their own tests, so a worker can be a contractor for one purpose and an employee for another. If you think the company got your status wrong, the section on misclassification below covers what you can do.

Tax withholding and payroll taxes

On tax withholding and payroll taxes, a W-2 employer withholds income tax and your 7.65% share of Social Security and Medicare and pays its own 7.65%. A 1099 contractor has nothing withheld and pays both halves as self-employment tax.

The contractor's 15.3% applies to 92.35% of net profit, and you'll need to make quarterly estimated payments if you expect to owe $1,000 or more for the year. A short quarterly payment can draw an underpayment penalty even if you pay the balance by April. For how the employee and self-employed versions of the tax line up, see self-employment tax.

Deductions

On deductions, a 1099 contractor can take three that a W-2 employee cannot: half of self-employment tax, the QBI deduction, and business expenses.

• Half of self-employment tax: You deduct half of self-employment tax above the line, so the deduction lowers your adjusted gross income.
• The QBI deduction: Up to 20% of qualified business income, which the IRS calculates after the deductible part of self-employment tax. The guide to the QBI deduction shows when the taxable income cap sets the amount.
• Business expenses: Ordinary and necessary business expenses go on Schedule C, and they lower both your income tax and your self-employment tax.

The 1099 deductions list covers each business expense and where it goes on your return.

Benefits and worker protections

On benefits and worker protections, a W-2 employee usually gets both from the employer, while a 1099 contractor gets none from the client and pays for their own. Benefits account for most of the money difference between 1099 and W-2 work.

The employer also pays its 7.65% share of Social Security and Medicare on top of your wages. That employer share is part of the value of a W-2 job.

Tax forms and filing

The tax forms and filing differ by status: with a 1099 you report the income as business income and pay the tax yourself, and with a W-2 you copy the wages and the tax already withheld onto Form 1040.

• With a 1099: Each client that paid you $2,000 or more in 2026 sends you Form 1099-NEC.⁵ You report all of your business income on Schedule C whether a form arrived or not. Schedule SE calculates the self-employment tax, and your quarterly payments count toward what you owe. Your invoices and deposits are the record.
• With a W-2: The employer sends Form W-2 after the year ends, and the wages go on Form 1040. The withholding counts toward what you owe, so most employees get a refund or owe a small balance.

If you have both a W-2 job and 1099 income, what is self-employment tax covers how the two are taxed together. The Form 1099-K rules for payment apps are covered in the Schedule C guide.

Tax at four income levels

Tax at four income levels shows the gap falling from 4.2% of pay at $50,000 to 0.9% at $150,000.

Assumes a single filer in 2026 with the standard deduction, no other income, no business expenses, no credits, and no state tax, with the contractor's pay equal to net profit. The gap gets smaller as pay rises because the contractor's deductions grow with pay and save tax at a higher marginal rate. The Solvent Self-Employment Tax Calculator runs the self-employment tax part for your own pay.

How much more a 1099 contractor should charge

How much more a 1099 contractor should charge is enough above the salary to cover the extra tax and the benefits the job would have paid for. The table shows the contract pay that leaves you with the same income after federal tax as each salary.

This table covers tax only, under the same assumptions as the table above. Add what you'll pay for the benefits in the benefits table. This page does not estimate those costs, so price your own health coverage, retirement savings, and unpaid days before you accept a rate. Once the contract starts, how much to set aside for taxes gives the share of each payment to hold back.

Choose 1099 contract work if

• You want to set your own hours, methods, and clients, and work for more than one client at once.
• You have business expenses to deduct, on top of half of self-employment tax and the QBI deduction covered in the deductions section above.
• Your contract rate clears the salary by more than the tax premium in the charge table, plus what you'll pay for benefits.
• You want to open your own retirement plan, such as a solo 401(k) or SEP IRA.

Choose a W-2 job if

• You want health coverage, a retirement match, or paid leave you would otherwise pay for yourself.
• You want tax withheld for you, with no quarterly payments or deadlines to track.
• You want minimum wage and overtime protection, and unemployment coverage if the job ends.
• You want less record-keeping: one Form W-2 instead of invoices, expense records, and a Schedule C every year.