1099 vs W-2 Employee: What’s the Difference?

Estimated reading time: 4 Minutes

The IRS classifies types of workers as either an employee or independent contractor for tax purposes. If you’re reading this, you may wonder how they classify you. Determining whether a worker is an employee or independent contractor is not as simple as one might hope. It’s a gray area, and having an expert to consult can be very helpful.

The Employee Perspective

The IRS requires employers to report employee wages, tips, bonuses, and other forms of compensation via a W-2 or 1099. If you’ve received a W-2, your employer is responsible for collecting withholdings and social security taxes. This means they have classified you as an employee. On your W-2 you will see a summary of the wages paid and taxes withheld for that fiscal year. You can also see the benefits you’ve received from your employer. This is how most workers in the United States are classified.

IRS Form W-2 with a pen

If you are self-employed and work on an independent contract basis, things get more complicated. With this type of classification, employers report compensation to the IRS using Form 1099-MISC.

Employees typically receive benefits through their company, but there are exclusions against independent contractors collecting non-payroll benefits. This includes benefits such as health, life, and disability insurance.

Most importantly, taxes aren’t withheld from independent contractor’s paychecks. This means the tax burden weighs solely on the worker come tax season. If you are in this situation, Boxelder Consulting can help. For more information about hiring a tax lawyer check out our previous post What You Need to Know When Seeking a Tax Lawyer and a Reliable Tax Resolution Firm

The Employer Perspective

With the rise of companies like Lyft and Uber, the lines between employee and independent contractor have become increasingly blurry. It may tempt employers to classify workers as independent contractors as a way to limit payroll exposure.

Regardless, it is important to be certain that your classification is correct. There are harsh penalties for employers responsible for misclassification offenses. If you classify as 1099 over W-2, you will want to confirm that the following conditions describe your work relationship:

  • The worker defines the work schedule.
  • Worker provides their own tools and equipment.
  • The worker can accept or decline assignments on a case-by-case basis.
  • The worker may solicit provided services to other clients.

About Boxelder Consulting

The attorneys and accountants at Boxelder Consulting have years of experience helping businesses with their tax and accounting issues. Employee classification is complex, and it is important to get your advice ahead of time. The last thing you want to do is make a decision that could cost your business heavy penalties.


Group 28 Created with Sketch.

About the Author

A company founder standing by Colorado's Front Range

Tom Conradt

Co-Founder, IRS Collections Defense Attorney

Tom Conradt is the co-founder of Boxelder Consulting & Tax Relief, and has been practicing IRS Collections defense law for the past ten years. Graduating from the University of North Carolina at Chapel Hill, Tom is the lead IRS Collections Defense Attorney and heads the tax resolution department. Tom’s favorite part about working at Boxelder Consulting is hearing about the relief that clients experience after they sign up and start seeing immediate results on their case. Tom enjoys all the outdoor activities Colorado has to offer, including skiing, hiking and climbing. He is also looking forward to the return of indoor pickup basketball.

Group 28 Created with Sketch.

Take the Next Step

Get a free, no strings attached, thorough analysis of your tax liabilities.

Request a Consultation