W-2 vs 1099: what independent contractors need to know
The two classifications, what each one means for your tax bill, and the one real advantage of the harder path.
If you have started picking up freelance work, alongside a job or instead of one, you will have met two terms straight away: W-2 and 1099. The difference between them changes how you file, what you owe, and who is responsible for getting it right.
A W-2 employee
- Your employer handles federal, state and payroll tax withholding.
- You get a Form W-2 after year end summarising what you were paid.
- Most of your tax liability is handled for you, automatically.
A 1099 independent contractor
A freelancer, consultant, rideshare driver or creator is an independent business rather than an employee.
- Clients do not withhold any tax from what they pay you.
- You receive a Form 1099-NEC from any client who paid you $2,000 or more during the calendar year. That threshold rose from $600 for payments made from 2026 onwards, and it is adjusted for inflation after 2026.
- You are responsible for filing and paying your own tax — including the money no client reported.
That last point is worth sitting with. A client who pays you less than the threshold sends no form to anyone, and the income is still taxable and still yours to report. The form records a payment; it does not decide whether the payment counts.
The advantage: deductions
1099 workers carry a heavier self-employment tax burden, and they gain something an employee does not have. The costs of running your work — software, equipment, the business share of a phone bill — reduce the income you are taxed on. An employee with the same costs generally cannot deduct them at all.