The basics, explained.
This is an introduction to 1099 vs W-2. For your specific situation, consult your tax pro or our Marketplace.
When to classify a worker as employee vs contractor: and what each costs.
The full guide below covers eligibility, deadlines, calculation, and filing. If you want us to handle the filing inside your BOS, click the relevant CTA.
Common questions.
What is the difference between a 1099 contractor and a W-2 employee?
A W-2 employee works under your direction with taxes withheld and benefits, while a 1099 contractor is an independent business you pay for services without withholding, reported on a 1099. The classification turns on control and independence, not on what you call the person. We flag which relationship you actually have.
What happens if I misclassify an employee as a contractor?
Treating an employee as a 1099 contractor can bring back taxes, penalties, and liability for unpaid withholding and benefits, and an agreement alone does not fix a relationship that functions like employment. We flag the risk so you classify based on the real relationship, not convenience.
What are the tax differences?
For a W-2 employee you withhold and pay payroll taxes and issue a W-2, while for a 1099 contractor you withhold nothing and issue a 1099 if you paid the threshold, and the contractor handles their own taxes. We flag the reporting for each so your obligations are met correctly for both types.
Do I need a W-9 from contractors?
Yes: collect a W-9 from a contractor before you pay, so you have the name and taxpayer ID needed to issue a 1099 at year-end and to avoid backup withholding. We flag the up-front collection so year-end reporting is clean rather than a scramble to chase missing information.
Can a worker be both?
Generally not for the same work at the same time: a person is either an employee or a contractor for a given role based on the relationship, though someone could be an employee in one capacity and a contractor in a genuinely separate one. We flag how to handle mixed situations so each role is classified correctly.
How does classification affect hiring?
It shapes your obligations, payroll and benefits for employees versus contracts and 1099s for contractors, so getting it right is part of setting up to hire. We flag the requirements for each so your hiring is compliant from the first worker rather than creating a misclassification problem.