1099 vs. W-2: What’s the Difference & How Does It Affect Taxes?

Getting paid as a 1099 contractor feels great—until tax season hits. On the flip side, W-2 employees often miss out on deductions. So, what’s the real difference? And which one is better for your wallet?

If you’ve ever wondered how your income type affects your taxes, this guide breaks it down simply.

1. What’s the Difference Between 1099 and W-2 Income?

✅ W-2 Employee: You work for an employer who withholds taxes from your paycheck. You get a W-2 form at the end of the year.✅ 1099 Contractor: You’re self-employed. You’re paid in full with no taxes withheld. You’ll receive a 1099-NEC if you earned $600+ from a client.

📌 Key Difference: W-2 = taxes withheld. 1099 = you’re responsible for paying taxes yourself.

2. How Taxes Work for Each

W-2 Employees:

• Taxes are automatically withheld (federal, state, Social Security, Medicare)

• Employer covers half of your Social Security & Medicare taxes

• You may get a refund if you overpaid

1099 Contractors:

• You pay the full 15.3% self-employment tax (Social Security + Medicare)

• You’re responsible for quarterly estimated taxes

• You may owe at tax time if you didn’t plan ahead

📌 Pro Tip: The self-employment tax can be a shocker. Plan to set aside 25–35% of your income for taxes.

3. Can You Deduct Business Expenses?

✅ 1099 Workers: YES. You can deduct:

• Home office

• Software & subscriptions

• Business mileage

• Equipment, advertising, insurance, etc.

✅ W-2 Employees: Mostly NO. Since the Tax Cuts and Jobs Act of 2018, unreimbursed employee expenses are no longer deductible unless you're in a few specific professions (ask a tax pro).

📌 Takeaway: If you’re a 1099 contractor, tracking expenses is essential to reduce your tax bill.

4. Filing Differences

W-2 Employee:

• File your W-2 info on Form 1040

1099 Contractor:

• File a Schedule C (Profit or Loss from Business)

• Pay self-employment tax via Schedule SE

• Include business deductions to reduce your taxable income

  
  

5. Which One Saves You More in Taxes?

✅ W-2 Pros:

• Simpler taxes

• No estimated payments

• Employer covers half of your payroll taxes

✅ 1099 Pros:

• Huge deduction potential

• More control over income and expenses

• Possible S-Corp election to reduce self-employment taxes

🚫 1099 Cons:

• More responsibility

• More complex tax filing

• Higher risk of underpayment penalties

📌 Bottom Line: Neither is “better”—they’re just different. But understanding the rules can help you save money.

Final Thoughts: Know What You’re Working With

Understanding your income type is step one to tax planning. Whether you're W-2 or 1099 (or both), the right strategy helps you keep more of your hard-earned money.

Need help navigating your tax situation or planning for next year? Let’s talk: https://www.glavinicfs.com/bookandrew