W-2 Employees vs. 1099 Contractors
01.W-2 Employment Status
If you are hired as a traditional employee, you will receive a W-2 form at the end of the year. Your employer automatically deducts income taxes, Social Security, and Medicare from your paychecks. They also pay half of your payroll taxes.
02.1099 Independent Contractors
If you work as a freelancer, contractor, or gig worker (like driving for Uber), you will receive a 1099 form. Your client does not withhold any taxes! You are responsible for calculating and paying your own income and self-employment taxes (usually quarterly).
03.The Self-Employment Tax Trap
Many new immigrants prefer 1099 work because the gross paycheck is larger. However, 1099 workers must pay both the employer and employee portions of Social Security and Medicare taxes (an extra 15.3% self-employment tax). Factor this in when setting your rates!