W-2 vs. 1099

On a W-2 you're an employee: taxes come out of every check and your employer pays half of Social Security and Medicare. On a 1099 you're self-employed: nothing comes out, you owe 15.3% self-employment tax on top of income tax, and you may need to pay four times a year.

What to know

1. Know what each form means. An employer generally withholds income tax, Social Security and Medicare from an employee's wages, pays a matching share, and pays unemployment tax. For an independent contractor, a business generally withholds nothing.
2. Know the self-employment tax. It's 15.3%: 12.4% for Social Security and 2.9% for Medicare. You can deduct the employer-equivalent half when you figure your adjusted gross income.
3. Know when you must file. If you have $400 or more in net earnings from self-employment, including gig work and side jobs, you must file a tax return.
4. Set money aside from every payment. Nobody is withholding for you. A separate savings account for tax money keeps it from getting spent. If you expect to owe $1,000 or more when you file, you generally have to make estimated payments.
5. Put the estimated tax dates on your calendar: April 15, June 15, September 15 and January 15 of the next year. For example, 2026's last payment is due January 15, 2027.
6. Report all of it. You must report all your gig income, even if no business sends you a 1099. Payment apps and online marketplaces send a Form 1099-K when payments for goods or services top $20,000 in more than 200 transactions, but you must report the income either way.
7. Keep records. Track the money you receive and your expenses; records help you deduct expenses and fill out your return.