The Freelancer, Contractor, and Employee Guide: Exploring the Meaning of 1099 vs. W2

Independent Contractors

Operate under a contract for specific tasks or projects.
Enjoy a high degree of autonomy in how they complete their work.
Often provide their own tools and set their own schedules.
1099: Refers to their tax status where they are responsible for their own taxes, including self-employment taxes.

Freelancers

Similar to independent contractors but usually work on multiple projects for more than one client simultaneously.
Work across various industries such as writing, design, and consulting.
Have the flexibility to choose their clients and workload.
Also fall under the 1099 category, handling their own tax payments and deductions.

Employees

Work part-time or full-time for a single employer.
The employer defines their work hours, responsibilities, and provides necessary tools.
Receive benefits such as healthcare, retirement plans, and paid leave.
W2: Indicates their employment status where taxes are withheld by the employer, and they receive protections under labor laws.

W2: W2 workers often get health insurance through their jobs, which can be cheaper because the company offers it for employees. But, not all companies offer health insurance. Small companies with fewer than 50 employees don’t have to, making insurance more of a bonus than a guarantee.

1099: As a freelancer or independent contractor, you’re in charge of your own health insurance. You have to look for a plan that works for you or your family and pay for it yourself. The silver lining is that you can deduct these costs from your taxes.

W2: If you’re a W2 worker, your job might help you save more for retirement. Some jobs will match what you put into your retirement savings, up to 6% every year. This extra money can really grow over time.

1099: Working as an independent contractor or freelancer means you can pick where and how to save for retirement. You have lots of choices but no help from an employer to add extra money to your savings. You’ll need to plan and save on your own.

W2: Your job does a lot of the tax work for you. They take out taxes for the government and also put money into Medicare and Social Security for you. But if your job situation changes, like getting a new job or not working all year, your tax withholdings might be off. You could owe money or get a refund later. You can change your tax forms to fix this, but it takes time to see the changes.

1099: If you’re a freelancer or independent contractor, you handle your taxes yourself. You estimate how much you’ll owe and pay it quarterly. This way, you might get your tax payments just right, meaning no surprises in April. But remember, you also need to pay taxes to your state and local government.

W2: If you do a great job, your boss might promote you. This could mean more money or a better job title. Many jobs also offer raises or bonuses based on how well you work.

1099: If you’re your own boss, you decide when to raise your prices. You don’t need to wait for someone else’s approval to say you’re doing a great job. But, there’s no guarantee you’ll always have work, even if you’re really good at what you do.

W2: Your company might pay for your classes or training so you can learn more and do your job better. They might want you to stay with them for some time after you learn these new skills. They might even pay upfront for online courses.

1099: If you work for yourself, you need to pay for your own learning. But, you can often use these costs to lower your taxes if they’re about improving your business.

W2: Your job might cover costs for you to go to workshops, big meetings around the world, or special events in your field. They might even organize learning sessions during lunch at work.

1099: If you’re on your own, you need to look after your own growth. But, you can usually lower your tax bill by claiming costs for things like conferences, travel to these events, and staying in hotels, as long as they’re all about making you better at your job. Just remember to keep all your receipts.

W2: Aside from layoffs that seem more common now, employees usually don’t worry about whether they have a job tomorrow like they do when they are hustling for projects as a freelancer or contractor. If they start feeling unsure about their job security at their current company, they can look for a similar job somewhere else.

1099: Contractors and freelancers have to keep looking for new clients and keep up good relationships with the ones they have. They’re not just doing their main job; they’re also trying to sell their services. Some experts say this way of working could make your income more stable over time, even though it’s a bit more work to keep things going smoothly.

W2: If you’re let go for reasons not your fault, you can file for unemployment to help until you find a new job. This safety net is there if your job ends suddenly.

1099: If you’re a freelancer or contractor and a job ends, even if it’s not your fault, you don’t get this kind of help. If a job ends badly because a contract was broken, that’s a legal issue, but unemployment is not an option.

W2: Most of the time, employees need to work when the company says. But, more and more companies are okay with flexible hours. Still, your boss decides your schedule.

1099: Contractors and freelancers have to meet deadlines and be there for their clients, but they get to choose when they do the work. They don’t have to stick to the usual 9-to-5, except for some things like meetings.

W2: Employees have to ask for time off, whether it’s for a vacation, being sick, or any other reason. They get a certain number of paid days off each year. If they need more time, it might not be paid. But, there are laws like FMLA that protect their jobs if they need long breaks for family or medical reasons.

1099: Freelancers and contractors just decide when to take time off. However, they don’t get paid for it. They also don’t get paid for holidays and usually can’t use FMLA. If they can’t work because they’re sick or for family reasons, they have to figure out how to handle the lost income.

W2: If remote employees need to go somewhere for work, like a client’s office or their company’s office, and get hurt, they’re usually covered by the company’s insurance. They can get help if they’re injured because of their job.

1099: Contractors and freelancers aren’t automatically covered by workers’ compensation. Since there’s no law making employers cover them, if they get hurt while working, it’s a different story.

W2: Employees can sometimes get money back for work costs, but usually, they just tell their job about these expenses and get paid back. If you work from home, you might be able to deduct things like your office space or travel costs, but it’s good to talk to a tax expert first.

1099: Freelancers and contractors, who are their own bosses, can cut down on their taxes by claiming various work expenses. Things like driving for work, buying supplies, or paying for your phone and internet can all lower your tax bill. Just make sure to keep your work stuff separate from your personal things. The clearer you are about what’s for work, the easier it is to explain your deductions.