W-2 vs 1099
The IRS forms that distinguish a traditional employee (W-2) from an independent contractor (1099).
If you are a W-2 employee, your employer withholds federal and state income tax, Social Security, and Medicare, and pays half of FICA (7.65%) on your behalf. If you are a 1099 contractor, no tax is withheld and you owe the full self-employment tax of 15.3% (both halves of FICA) on top of income tax. 1099 workers must pay quarterly estimated taxes to the IRS or face underpayment penalties. Contractors can deduct legitimate business expenses and may qualify for the 20% QBI deduction; W-2 employees generally cannot deduct work expenses since the 2017 Tax Cuts and Jobs Act.
A 60-second lesson that puts this term in context, alongside the others, lives inside the Finlo app.