W-2 vs. 1099: What’s the difference, and why does it matter?

There are some key differences between being classified as a W-2 vs. 1099 worker.

As a W-2 employee, your employer withholds taxes from your paycheck, including income tax, Social Security, and Medicare taxes. You may also be eligible for benefits such as health insurance, retirement plans, and paid time off.

As a 1099 independent contractor, you are responsible for paying self-employment taxes directly to the government, including income tax and Social Security/Medicare taxes. You are not entitled to benefits provided to W-2 employees. You often also have more control over your work schedule and assignments.

W-2 vs. 1099 classification matters because it affects your tax obligations, eligibility for benefits, and level of job security. W-2 employees typically have more stability, as they are covered by labor laws and regulations, whereas 1099 contractors have greater flexibility but fewer protections and benefits. Understanding the difference helps workers make informed decisions about their employment arrangements and financial planning.