One of the most common questions during tax season is whether to classify a worker as a 1099 contractor or a W-2 employee. The distinction impacts taxes, benefits, and legal obligations for businesses and workers.
What is a 1099?
A 1099 form is issued to independent contractors who work for a business but are not employees. Contractors are responsible for:
- Paying their own taxes, including self-employment tax.
- Covering expenses for tools, travel, and other costs.
- Setting their own hours and work methods.
What is a W-2?
A W-2 is for employees who work under a company’s control and direction. Employers withhold taxes, provide benefits like health insurance or retirement plans, and dictate work schedules.
Key Differences
| Criteria | 1099 (Contractor) | W-2 (Employee) |
| Taxes | No taxes withheld; self-paid | Taxes withheld by employer |
| Benefits | None | Often provided |
| Control | Works independently | Employer controls work |
Misclassifying workers can result in hefty fines and back taxes. To ensure compliance, review IRS guidelines or consult a tax expert.
