1099 vs W-2 Explained

W-2 employees and 1099 independent contractors are treated differently for federal payroll tax purposes. Employees typically have income tax and FICA withheld from paychecks; employers pay matching Social Security and Medicare tax on wages.

Independent contractors generally receive gross payments reported on Form 1099-NEC and may owe self-employment tax on net profit plus federal income tax. Contractors often make quarterly estimated payments because withholding usually does not apply to business income.

A federal tax comparison is not the same as worker classification. Whether someone should be a W-2 employee or contractor is a legal and factual determination outside TaxChecker's scope.

TaxChecker's W-2 vs 1099 Calculator models side-by-side federal tax scenarios using user-entered wages, benefits, business expenses, and contractor income. The 1099 Tax Calculator focuses on contractor net income after expenses.

Contractors who pay both halves of Social Security and Medicare through self-employment tax may need higher gross income than W-2 wages to achieve similar after-tax cash flow, depending on benefits and expenses. Comparison outputs are planning estimates only.

For deduction concepts on contractor income, see 1099 Tax Deductions Explained. For payment timing, see Quarterly Taxes Explained.