In the US, the form you file for a worker follows one decision: are they a contractor or an employee? A 1099 and a W-2 are the paperwork. The classification behind them is what matters, and getting it wrong is where the cost sits.
Key facts
- A 1099 documents payments to an independent contractor; a W-2 reports wages, tax, and withholding for an employee.
- The form follows the worker's classification, not the other way around.
- Filing a 1099 for someone the law treats as an employee is misclassification, and the liability sits with the company.
Contents
- What is the difference between a 1099 and a W-2?
- What a 1099 covers
- What a W-2 covers
- How to decide which applies
- Frequently asked questions
- Getting 1099 vs W-2 right in your program
What is the difference between a 1099 and a W-2?
In the US, a 1099 documents payments to an independent contractor, while a W-2 reports wages for an employee, and the difference reflects how the worker is legally classified. The 1099 worker handles their own taxes; the W-2 worker has tax withheld and receives employee protections and benefits.
What a 1099 covers
A 1099 records what a business paid to a self-employed worker over the year. The contractor is responsible for their own income and self-employment tax. The company does not withhold tax, provide benefits, or carry employer obligations for that worker.
What a W-2 covers
A W-2 reports an employee's wages and the tax withheld from them. The employer withholds income and payroll taxes, pays its share of contributions, and provides the protections and benefits that come with employment.
How to decide which applies
The form is decided by worker classification, not by preference. The test looks at how much control the company has, the financial arrangement, and the nature of the relationship.
Key takeaway: You do not choose 1099 or W-2 to save money. You classify the worker correctly, and the form follows.
Best practice: Classify at onboarding, document the decision, and apply the correct status per state. Worksome classifies workers automatically and pays them as a 1099 contractor or a W-2 employee under one system.
Frequently asked questions about 1099 vs W-2
Can a worker be both 1099 and W-2? For the same work, no. A worker is classified one way for a given engagement. A person could be a W-2 employee at one company and a 1099 contractor for another.
Who decides if someone is 1099 or W-2? The company engaging the worker, based on classification rules. Tax authorities expect the correct status and hold the business responsible.
What happens if you file a 1099 for an employee? That is misclassification. It can trigger back taxes, penalties, and reclassification claims.
Getting 1099 vs W-2 right in your program
The form is the easy part. The classification behind it is where risk lives. Worksome makes the determination for every worker and handles both 1099 and W-2 engagements in one place.
This page is general information, not legal advice. Tax and classification rules vary by state and change over time. Confirm your specific situation with qualified counsel.
Related: Worker classification, Misclassification, Independent contractor (IC), Employer of Record (EOR).