W-2 vs 1099 Income: Employee vs Contractor Taxes
**W-2 employees** have withholding and employer-paid payroll taxes. **1099 contractors** owe self-employment tax and quarterly estimates—higher gross pay often must cover benefits and tax gap.
Step by step
1. Gross-to-net comparison
Add employer benefits value to W-2; subtract SE tax + insurance on 1099.
2. Track deductible expenses
1099 business expenses reduce income—must be ordinary and documented.
3. Set aside estimates
25–30%+ of 1099 net common starting reserve (varies by bracket).
Employee vs contractor
Not tax advice—classification also has legal tests beyond tax math.
- W-2: Withholding; FICA split with employer.
- 1099: SE tax; quarterly payments; more admin.
Use our calculators
Common mistakes
- Missing quarterly estimates
- Underreporting deductible business use
FAQ
Is 1099 always better pay?
Gross may be higher—net after tax and benefits often closer than it looks.