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The main difference between W-2 employees and 1099 contractors is whether your business withholds taxes from that worker's paycheck. When you hire a W-2 employee, you're required to withhold ...
Employees receive a W-2. Independent contractors receive a 1099 form. ... 1099 employees typically provide contract work or work in a freelance capacity.
The distinction between independent contractor and employee is an important one in the United States, as the costs for business owners to maintain employees are significantly higher than the costs associated with hiring independent contractors, due to federal and state requirements for employers to pay FICA (Social Security and Medicare taxes) and unemployment taxes on received income for ...
The contract is between an "employee" and an "employer". It has arisen out of the old master-servant law, used before the 20th century. Employment contracts relies on the concept of authority, in which the employee agrees to accept the authority of the employer and in exchange, the employer agrees to pay the employee a stated wage (Simon, 1951).
In US territories, the W-2 is issued with a two letter territory code, such as W-2GU for Guam. Corrections can be filed using Form W-2c. The use of the form has led to the phrase "W-2 employees" to refer to those who receive Form W-2, in contrast to independent contractors and other "1099 workers" whose income is instead reported on Form 1099. [2]
However, such employees are more expensive to hire than independent contractors because Social Security and Medicare taxes must be paid on wages in the form of FICA tax. [2] Statutory employees pay FICA tax through their employer, and so do not pay self-employment tax; despite this, they must report expenses, income and wage. [3]
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