Whether you receive a W-2 or a 1099-NEC determines how your income is taxed, how much you owe, and what deductions you can take.

W-2: Employee

Your employer withholds federal and state income tax, Social Security (6.2%), and Medicare (1.45%) from every paycheck. At year-end you receive a W-2 reporting all wages and withholding. You file Schedule W-2 with your 1040.

1099-NEC: Independent Contractor

You receive payment in full β€” no withholding. You are responsible for paying self-employment tax of 15.3% (covering both the employee and employer share of Social Security and Medicare), plus income tax on net profit. You file Schedule C with your 1040.

Key Differences at a Glance

  • Withholding: W-2 yes, 1099 no
  • SE Tax: W-2 no (split with employer), 1099 yes (full 15.3%)
  • Business deductions: W-2 limited, 1099 full Schedule C deductions
  • Quarterly payments: W-2 usually not needed, 1099 almost always required

Can You Receive Both?

Yes. Many Americans have a W-2 job and freelance income. In that case, you file both Schedule C for the 1099 income and include your W-2 wages on your 1040.

Source: IRS Publication 15-A; IRS.gov/self-employed