Tax

W-2 vs 1099 Employment

Compare W-2 employment and 1099 contractor work — taxes, benefits, and tradeoffs.

Overview

W-2 employees have taxes withheld, get benefits (health, 401(k) match, paid time off), and split FICA taxes with the employer. 1099 contractors set their own schedules but pay all 15.3% self-employment tax themselves and provide their own benefits.

Feature

W-2 Employee

1099 Contractor

Tax Withholding

Automatic — employer handles

You pay quarterly estimated taxes

FICA Tax (15.3%)

Employer pays half (7.65%)

You pay all 15.3% (self-employment tax)

Benefits

Health, 401(k), PTO, etc.

None — provide your own

Deductible Expenses

Limited (employee expenses no longer deductible)

Many — home office, mileage, equipment, retirement

Retirement Plans

401(k), 403(b)

Solo 401(k), SEP IRA — much higher limits

QBI Deduction (Sec 199A)

Up to 20% deduction on net SE income

Job Protections

Yes — employment law

Limited — defined by contract

Choose W-2 Employee when...

Choose W-2 employment when you value benefits, stability, and want simpler tax filing — the employer's contributions make up for less tax flexibility.

Choose 1099 Contractor when...

Choose 1099 contracting if you can charge a premium rate, want flexibility, and will use the higher retirement-saving capacity and expense deductibility.

Our Verdict

For the same gross pay, W-2 employment is usually more valuable than 1099 because of benefits and the employer's share of FICA. But 1099 unlocks much higher retirement contribution limits (Solo 401(k) up to $70K), the QBI deduction, and substantial business expense deductions. Successful contractors often clear more after-tax than equivalently-paid employees once they're established.

Frequently Asked Questions

What is the difference between W-2 Employee and 1099 Contractor?

When should I choose W-2 Employee over 1099 Contractor?

Choose W-2 employment when you value benefits, stability, and want simpler tax filing — the employer's contributions make up for less tax flexibility.

When should I choose 1099 Contractor over W-2 Employee?

Choose 1099 contracting if you can charge a premium rate, want flexibility, and will use the higher retirement-saving capacity and expense deductibility.

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