What Is the Difference Between a W-2 and a 1099?

A W-2 means you're an employee. Your employer withholds federal income tax, state income tax, Social Security, and Medicare from every paycheck. They also pay half of your payroll tax in the background. You receive a net amount, file once a year, and either get a refund or owe a small amount to settle up.

A 1099 means you're a contractor. The client pays you the full amount — nothing withheld — and you're responsible for all your own taxes: federal, state, AND self-employment tax. You typically pay quarterly during the year and reconcile in April.

Self-employment tax (15.3%) hits 1099 income but not W-2. On a W-2 paycheck, you and your employer split this tax 50/50 — you only see your half (called FICA). On 1099 income, you pay both halves yourself. That's the single biggest financial difference between the two.

On the same $80k income, a 1099 contractor pays roughly $6,000 more in tax than a W-2 employee — entirely because of the employer half of payroll tax.

Many freelancers have a W-2 day job and side 1099 gigs. Your W-2 withholding only covers your W-2 income. Side income is unwithheld — you owe federal + state + SE tax on it separately, usually via quarterly estimates or by increasing W-2 withholding to cover the gap.

It depends. W-2 has lower direct tax but caps deductions and offers fewer retirement options. 1099 has higher direct tax but unlocks every business deduction (home office, mileage, software) plus generous retirement contributions (SEP-IRA, solo 401(k)). Above ~$70k of self-employment income, 1099 with maxed deductions can come out ahead.

TaxClutch is built for hybrid income. Add your W-2 in settings (or upload it), then log freelance income separately. The dashboard combines both into a single accurate liability — federal, state, and SE tax — so you always know your total picture.