1099 vs W-2: what changes in your pay

What comes out of a W-2 paycheck

Federal income tax, Social Security (6.2%), Medicare (1.45%) and, where they apply, state and city taxes. On a $1,760.00 payment, Social Security and Medicare are $134.64; the employer pays a matching amount on its own.

What a 1099 pays

Nothing is withheld. They pay income tax plus self-employment tax: 15.3% of net earnings, which equals the employee share of Social Security and Medicare plus the employer share.

It is usually paid in four estimated payments a year, and business expenses can be subtracted before the tax is figured.

Why a 1099 rate should be higher

At the same hourly rate, a 1099 keeps less: they pay the employer share of FICA and get no health insurance, paid time off, overtime or unemployment insurance. That is why contractor rates are usually well above employee rates for the same role.

It is not the employer's choice

What counts is how the work really is: who decides your schedule, your tools and how the job is done. If you work like an employee but are paid as a 1099, it may be a misclassification.

Frequently asked questions

Official sources

• IRS, Independent contractor (self-employed) or employee?
• IRS, Self-employment tax (Social Security and Medicare taxes)
• IRS, Topic no. 751, Social Security and Medicare withholding rates