Last updated: April 2026 · Data: IRS, BLS, state sources
A W-2 is the tax form employers issue to employees, reporting wages paid and taxes withheld during the year. A 1099 (specifically 1099-NEC or 1099-MISC) is the form issued to independent contractors and freelancers, reporting payments made without tax withholding. The distinction between these two forms reflects a fundamental difference in your employment relationship, tax obligations, and available deductions.
As a W-2 employee, your employer withholds federal income tax, state income tax, and FICA taxes (Social Security and Medicare) from every paycheck. Your employer also pays the matching 7.65% FICA on your behalf. As a 1099 contractor, no taxes are withheld from your payments. You are responsible for paying all taxes yourself, including the full 15.3% self-employment tax (both the employee and employer portions of FICA).
| Feature | W-2 Employee | 1099 Contractor |
|---|---|---|
| Tax Withholding | Employer withholds taxes | No withholding; pay quarterly |
| FICA Rate | 7.65% (employer matches) | 15.3% self-employment tax |
| Benefits | Health insurance, 401(k), PTO | None from client |
| Deductions | Limited (standard deduction) | Business expenses, home office, mileage |
| Schedule | Set by employer | Set by contractor |
| Tax Form | W-2 | 1099-NEC |
| Tax Filing | Form 1040 | Form 1040 + Schedule C + Schedule SE |
Consider earning $80,000 as a W-2 employee versus a 1099 contractor. As a W-2 employee, your employer pays half of FICA ($6,120), and you pay the other half. As a 1099 contractor, you pay the full $12,240 in self-employment tax, though you can deduct half ($6,120) as an above-the-line adjustment.
However, 1099 contractors can also deduct legitimate business expenses, including a home office, equipment, software, professional development, health insurance premiums, and retirement contributions to a SEP IRA or Solo 401(k). These deductions can significantly reduce taxable income, sometimes offsetting the higher self-employment tax.
Use the state tax calculators to compare your take-home pay under both scenarios. For quarterly payment guidance, see the Quarterly Tax Guide for Freelancers.