What Is the Difference Between a W2 and 1099 Employee?

What Is the Difference Between a W2 and 1099 Employee?

Are you trying to learn the difference between a W2 and 1099 employee? If yes, you should check out our comparative guide right here.

Do you understand the differences between staff members and independent contractors?

It can be confusing, as they can appear similar at times.

However, W2 workers and a 1099 employee have very different implications for tax purposes. If you get it wrong, it can cost your business valuable time and money.

Read on to learn the differences between both types of workers, and why it matters for your business.

What Is a W2 Employee?

A W3 employee is a hired employee who works full or part-time for your business. With your payroll, you’ll withhold state and federal tax for them, along with Medicare and Social Security. You’ll also pay an employment tax on them.

They don’t run their own business, they work for your company.

Generally, you will train W2 employees, set their hours, job tasks, and responsibilities, and they will be long-term employees of your company.

To help with filing taxes, you can get your W2 online.

What Is a 1099 Employee?

In contrast, a 1099 employee is an independent, self-employed contractor. They may be freelancers on consultants who work on short projects, or on a longer basis, for several different companies at the same time.

As they work for themselves, business owners don’t need to withhold any taxes or benefits. Instead, a 1099 independent contractor reports and files their own taxes via the 1099 form.

When businesses hire 1099 workers, they are usually contracted for a set amount of time, and they are not direct employees of your company.

Filing taxes as a self-employed business owner can be trickier than with a W2, so those using a 1099 should take care to keep records of all deductions, automate record-keeping, and estimate income in advance to calculate your tax.

Which One Is Better for My Business?

When hiring workers, there are pros and cons to both types of workers. Many companies will have a mix of both types of workers.

W2

W2 workers are reliable, generally with deep care and value in the company. You can count on your staff for long-term support, camaraderie, and reliability.

However, employees need to be trained, actively managed, and supported. They also come at a higher cost, since you’ll need to pay for their benefits, such as health insurance.

1099

1099 workers are flexible, and you can hire them temporarily for a certain project. They are experts in their field and should be able to pick up their tasks without much training or support needed.

They can also be more affordable, as you aren’t paying for their benefits.

However, because self-employed people have to pay for their own insurance and work in an unstable environment, their hourly rate may be higher than you pay your staff.

Sort Out Your Tax Filings Today

Now that you understand both a 1099 employee and a W2 employee, you can decide which works best for your business.

There are also different tax requirements for each type, both for the worker and the company, so making sure you’re comfortable with both types of workers means you can file your taxes correctly.

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