Contractor: 1099 or W2?
If you are thinking about becoming a contractor, there are two employment types you should consider before jumping in with both feet. Each comes with their own positives and negatives, and therefore, should be heavily reviewed by you if contracting becomes your next career step. In this article, we will try to help you answer some of the questions you might have about the employment types that the contracting world has to offer.
A 1099 contractor is considered self-employed. This means that you pay your own taxes and must pay for your own employment benefits such as health care or retirement. You will be responsible for your booking keeping – tracking billable hours, and setting aside money for Uncle Sam every quarter to pay your taxes. The company you work for is not considered your employer, but your client, and they hold no responsibility to you other than what is required of them by co-employment laws. So, this employment type requires a lot more work on your end because you must take on responsibilities normally handled by the company if you were a permanent member of their staff.
On the plus side, 1099 contractors do get paid higher wages than their W2 counterparts, and have the flexibility to be their own boss. You can choose when and how to do the work you were hired to do when you entered into the contract with the client, and you can pick and choose the type of projects on which you want to work. However, if you’re not that experienced in the contracting world, it might be best to start off as a W2 contractor instead.
A W2 contractor is essentially and employee the company who has hired them. While you aren’t a permanent employee of the company for which you work, you do enjoy similar benefits (if offered) that a company’s permanent staff enjoys. You can participate in the company’s healthcare and retirement programs, and can earn PTO as a result of being a W2. Employers who hire a W2 contractor, also take care of your tax withholdings and pay a portion of your taxes, which is something of which a 1099 does not have the benefit.
Thus, W2 contractors have it pretty easy when if comes to employment. Yes, they may not have the same flexibility of being their own boss and picking and choosing their work assignments, but they don’t have to deal with the paperwork and risks that a 1099 comes with.
Making the Decision
Making the decision to become a 1099 or W2 contractor is solely based upon your own personal preference. If you are willing to commit to the amount of work it takes to becoming your own employer, and accept the risks involved, then 1099 contracting work might be right for you. However, if you are new to the contracting world, we recommend W2 employment until you gain enough experience to take the bigger plunge as a 1099.