1099 vs. W-2: How Independent Contractors and Employees Differ
In this economy, many businesses are trying to cut back on full-time staffers by hiring contractors to do the same work instead—minus the expensive benefits. As a result, it can often be difficult to tell employees and contractors apart. But there are significant differences, both in terms of workers’ personal bottom lines and in the eyes of the IRS.
To better understand the nuances between the two designations—and what to do if you think you’re being misclassified—we talked to Jaime Campbell, a CPA with 10-plus years of experience.
1099s and W-2s: Breaking Down the Difference
Simply put, 1099s and W-2s are two separate tax forms for two different types of workers. If you’re an independent contractor, you get a 1099 form. If you’re an employee, you receive a W-2.
As a W-2 employee, payroll taxes are automatically deducted from your paycheck and then paid to the government through your employer. If you’re a contractor, you are responsible for calculating your own payroll taxes and then submitting the sum to the government on a quarterly basis.
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How to Determine the Correct Job Status
When it comes to who should be classified as an employee and who should be considered an independent contractor, Campbell says that the key word is “control.” In other words, “it’s all about who controls the work you do,” she says.