Two ways of being paid ยท The structural differences
1099 vs W-2: The Two Systems, Side by Side
Work can sit in either of two tax systems, and almost everything downstream differs: who withholds the income tax, who carries the payroll tax, when the tax is paid during the year, and which expenses count. This page sets the two systems side by side as the IRS rules state them, in one table. It does not rank them, because for most workers the status is not a choice to be made from a table: it follows the facts of the working relationship, as the section after the table explains.
Last reviewed: November 4, 2026.
The differences, in one table
| Point | Employee (Form W-2) | Independent contractor (Form 1099) |
|---|---|---|
| The year-end statement | Form W-2, issued by the employer, showing wages and every amount withheld | Form 1099-NEC for services, issued by the business that paid; platform work is often reported on Form 1099-K |
| Income tax during the year | Withheld from every paycheck by the employer, figured under Publication 15-T from the worker's Form W-4 | Nobody withholds. The worker pays the year's tax in four estimated payments on the IRS dates, or owes it with the return |
| Social Security and Medicare | Split in two: 6.2 percent Social Security and 1.45 percent Medicare come out of the worker's pay, and the employer pays the same amounts again | One combined self-employment tax of 15.3 percent on 92.35 percent of net earnings, figured on Schedule SE. One half of it is deductible on the return |
| The 2026 wage base | $184,500 of wages. Where a worker has both kinds of income, the W-2 wages use the base first | The same $184,500 base, shared: self-employment income uses whatever room the W-2 wages left |
| Work expenses | Unreimbursed employee expenses have not been deductible on the federal return under the rule in force since 2018; a handful of states still allow them on the state return | Ordinary and necessary business expenses are deductible on Schedule C, including the standard mileage deduction for a car used in the work |
| Tips and the 2026 deductions | The tips and overtime premium deductions are built on figures the employer reports: tips in Box 12 code TP, the overtime premium in code TT | There is no W-2 and no code TT. A self-employed worker's qualified tips must be reported on a Form 1099 or on Form 4137, and the tips deduction cannot exceed the net income of the business the tips came from |
| What the payer must report | The wages and the withholding, on the W-2 | Payments to a contractor of $2,000 or more in the year, on Form 1099-NEC, for payments from 2026 onward; the threshold was $600 before Public Law 119-21 raised it. The worker's duty to report the income does not depend on the form arriving |
| Paying late in the year | Withholding is treated as paid evenly through the year, which shelters most employees from underpayment charges | Estimated payments fall on fixed dates, and paying heavily late in the year does not fully cure an early miss; the IRS publishes safe harbour amounts that avoid the charge |
the facts decide, not the title
The label is not the test
The IRS states the rule in one sentence: “If an employer-employee relationship exists (regardless of what the relationship is called), then you are not an independent contractor.” The test behind that sentence is factual. It looks at the relationship as it actually runs, above all at whether the firm holds the right to control or direct not only the result of the work but what will be done and how it will be done. The IRS guidance, in Publication 15-A and on its classification pages, groups the facts under three headings: behavioral control, financial control, and the type of relationship between the parties.
Three consequences follow from that, and they are the reason this page carries no recommendation:
- A contract label does not decide it. A signed agreement calling the worker an independent contractor is one fact about the relationship, weighed with the rest. It does not override how the work is in fact directed.
- Preference does not decide it. Neither the worker's wish for contractor status nor the firm's wish to issue a 1099 makes the status follow. Where the facts point one way, filing the other way is the misclassification the rules are written against.
- There is an official route for doubtful cases. Either the worker or the firm can file Form SS-8 and ask the IRS to determine the status for federal tax purposes.
What rides on the answer is the whole table above: the withholding, the payroll tax split, the quarterly payment duty, the expense rules, and, outside the tax columns, obligations such as unemployment insurance that attach to employment. That is why the classification is a determination about facts, and why this page stops at describing the two systems.
Both columns on one return
Plenty of workers sit in both systems in the same year: a W-2 job during the week and freelance or platform work beside it. Each stream keeps its own treatment on the one return, and two PlainStub tools are built for the contractor side of that combination: the 1099 tax calculator, which figures self-employment tax and income tax together, taking the W-2 wages into account for the shared wage base, and the quarterly estimated tax calculator, which splits the year's expected tax across the four IRS dates. The self-employment tax explainer works through the Schedule SE computation step by step, the mileage deduction page covers the car expenses in the contractor column, and the rideshare and delivery driver page covers the platform case in full.
Questions and answers
The firm calls me a contractor, sets my hours, and provides my tools. Which column am I in?
This page cannot decide any individual case, and no website can. The IRS test looks at the facts of the relationship, above all who holds the right to control what is done and how it is done, and the IRS states that an employer-employee relationship rules out contractor status regardless of what the relationship is called. Where the answer matters and the facts are disputed, either side can file Form SS-8 and ask the IRS to determine the status, and a qualified tax professional can assess a specific situation.
Can I ask to be paid as a contractor instead of an employee, or the other way around?
The status is not set by asking. An agreement, a contract label, or either side's preference does not decide it: the facts of the working relationship do. A genuine change in the relationship, in how the work is directed and paid for, changes the facts; a change of label alone does not.
I have a W-2 job and freelance work on the side. Which column applies to me?
Both, one for each income stream, on the same return. The job runs through the employee column: withholding each paycheck and the split payroll tax. The freelance work runs through the contractor column: no withholding, self-employment tax on Schedule SE, and quarterly payments if the withholding from the job does not cover the whole. The $184,500 wage base is shared, and the W-2 wages use it first.
Sources
- IRS, “Independent contractor defined”, irs.gov. The control test, the sentence quoted above on relationships existing regardless of what they are called, Form 1099-NEC box 1 reporting by the payer, and Form W-2 reporting for employees. Retrieved November 4, 2026.
- IRS, “Independent Contractor (Self-Employed) or Employee?”, irs.gov, and Publication 15-A, Employer's Supplemental Tax Guide. The three groups of facts (behavioral control, financial control, type of relationship) and the Form SS-8 determination route. Retrieved November 4, 2026.
- IRS, Publication 15 (2026), (Circular E), Employer's Tax Guide, What's New. The information reporting threshold of $2,000 for payments made from 2026, raised from $600 by Public Law 119-21, and the 2026 Social Security wage base of $184,500. Retrieved November 4, 2026.
- IRS, Topic No. 554, Self-Employment Tax. The 15.3 percent rate applied to 92.35 percent of net earnings and the deduction for one half of the tax.
- IRS, Tax Tip 2026-26. The reporting condition and the net income limit for a self-employed worker's qualified tips.
Last reviewed: November 4, 2026.