If you participate in the workforce, you are either a W2 employee or a 1099 contractor. At the end of the year, permanent employees receive a W2 tax form, while 1099 contractors are responsible for paying quarterly taxes on their income. There are several pros and cons to working for an employer in either capacity. Take a few moments to learn more about the difference between working as a W2 employee or a 1099 contractor.
Advantages of Being a 1099 Worker
As a 1099 independent contractor, you agree to perform a service for your client for a preset period or a predetermined amount of money. Since you are your own boss, you can pick and choose the clients and jobs you want. Here are a few of the advantages to being a 1099 worker:
- More Control Over Schedule and Workload: How much you work and when is all up to you. Working as a contractor offers much more flexibility to strike the right work/life balance for you.
- Greater Independence: Being self-employed, you can take time off, wake up late, or put in overtime whenever you want. As a freelancer, you have more flexibility to do things your way.
- Opportunities for Growth: Getting promoted as a W2 employee is entirely up to your boss or direct supervisors. When you work as an independent contractor, the trajectory of your career is for you to decide.
Disadvantages of Being a 1099 Employee
W2 employees are eligible to receive insurance benefits or paid time off, but employers are under no obligation to provide these benefits to 1099 workers. Another disadvantage is that freelancers or 1099 contractors are considered self-employed, making them responsible for paying more taxes. It’s also important to note that 1099 workers must calculate and pay their taxes on their own. If there are any inaccuracies in tax reporting, this can result in an audit from the IRS.
Advantages of Being a W2 Employee
Being a W2 employee involves signing a formal employment agreement that makes you a permanent staff member of a business. W2 employees are often guaranteed a certain number of hours a week and enjoy certain protections against unlawful termination of employment. There are several advantages to being a W2 employee, including:
- Eligible for Company Benefits
- Stable Employment
- Lower Tax Obligations
Disadvantages of Being a W2 Employee
Working as a traditional employee usually means working a rigid schedule that is subject to change at any time. You will also have less say in the work you do on a day-to-day basis. If you’re a W2 employee, your employer can also require you to follow specific compliance standards and regulations that may not apply to 1099 contractors.
Whether you are a W2 worker or an independent 1099 contractor, it’s essential to be aware of your rights. So first, talk with your CPA or another financial professional to decide which choice is right for you. Then, with the help of a certified public accountant or tax advisor, you can maximize the benefits of both options.