1099 vs. W-2 Income: Tax Differences & Which Is Better

Quick Answer

W-2: employer withholds 7.65% FICA, provides benefits. 1099: you pay 15.3% self-employment tax (both parts). 1099 offers more deductions (home office, equipment, supplies). W-2 simpler taxes, no self-discipline required. 1099 better if >$15k deductions/year.

W-2 Employee Tax Treatment

Employer withholds:

• Federal income tax (varies by W-4)
• Social Security tax: 6.2% up to $168,600 (2026)
• Medicare: 1.45% all income
• Additional Medicare: 0.9% if income >$200k (single)

Employee deducts:

• Standard deduction ($14,600 single, 2026)
• Limited above-the-line deductions only
• No business deductions

1099 Contractor Tax Treatment

Contractor pays:

• 15.3% self-employment tax (both SS + Medicare)
• Quarterly estimated income tax
• Full amount (no withholding)

Contractor deducts:

• Home office, supplies, equipment, depreciation
• Vehicle mileage (67.5 cents/mile in 2026)
• Health insurance premium (100% deductible)
• Retirement contributions: SEP-IRA up to $70k/year (2026)

Example: $80,000 Income

W-2 Employee:

• Gross: $80,000
• Withheld taxes: ~$12,600
• Take-home: ~$67,400
• No self-discipline needed

1099 Contractor:

• Gross: $80,000
• SE tax: $11,304
• Income tax: ~$7,500
• Business deductions (estimate): $12,000
• Taxable income: $68,000
• Total tax: ~$18,804
• After tax: $61,196
• BUT: Deduct $5,652 SE tax ½ = saves ~$1,356
• Net take-home: ~$62,552

Result: W-2 better unless significant deductions.

1099 Advantages

• Home office deduction (reduce taxable income)
• Equipment/supplies deductible
• Vehicle mileage: $0.675/mile (44k miles = $29,700 deduction!)
• Flexibility & independence
• Potential higher net (if deductions >$15k)

1099 Disadvantages

• Self-discipline: must file quarterly estimated taxes & track expenses
• No employer benefits
• Income irregular
• Self-employment tax on full amount (not withheld)

W-2 Advantages

• Taxes withheld automatically
• Employer benefits (health insurance, 401k, unemployment)
• Employer matches FICA (employer pays 7.65%)
• Simplicity

W-2 Disadvantages

• Limited deductions
• Stuck with employer
• Higher effective tax rate if no deductions

Which Is Better?

• If you have <$10k deductions/year: W-2 is better
• If you have >$15k deductions/year: 1099 can be better (especially with vehicle mileage)
• If you need benefits: W-2 (unless W-2 job is very low pay)

Hybrid Strategy

Some people work W-2 job + 1099 side gig. W-2 provides benefits/stability; 1099 provides deductions/tax savings.

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