What’s the difference between a W-2 employee and a 1099 contractor?

Q: What’s the difference between a W-2 employee and a 1099 contractor?

W-2 Employees: - You control how, when, and where they work - You withhold taxes and pay employer payroll taxes - Eligible for benefits and unemployment - Protected by employment laws - You issue Form W-2 by January 31 1099 Independent Contractors: - They control how work is completed - No tax withholding—they pay their own taxes - Not eligible for employee benefits - Not protected by employment laws - You issue Form 1099-NEC if you pay $600+ annually IRS Test: Considers behavioral control, financial control, and relationship type. Misclassification risks: Back taxes, penalties, lawsuits, and IRS audits. When in doubt, classify as employee or consult a professional.

W-2 Employees:

– You control how, when, and where they work

– You withhold taxes and pay employer payroll taxes

– Eligible for benefits and unemployment

– Protected by employment laws

– You issue Form W-2 by January 31

1099 Independent Contractors:

– They control how work is completed

– No tax withholding—they pay their own taxes

– Not eligible for employee benefits

– Not protected by employment laws

– You issue Form 1099-NEC if you pay $600+ annually

IRS Test: Considers behavioral control, financial control, and relationship type.

Misclassification risks: Back taxes, penalties, lawsuits, and IRS audits. When in doubt, classify as employee or consult a professional.

Denver’s Trusted Accounting & Tax Experts.