Is There a Difference in 1099 Tax Rate vs W2 Tax Rate?

If you’re a new business owner, you probably have some questions about the 1099 tax rate vs W-2 tax rate. While you may have paid a contracted worker the same as an employee, their tax and wage forms will look different. This can be confusing, especially if you don’t have much experience with business accounting.

Earnings reported on 1099 and W-2 paychecks may appear different, but they are more similar than you may think. While printing and preparing these tax and wage forms, it may appear that the 1099 tax rate vs w-2 tax rate is actually lower and that 1099 workers receive more pay than employees. This is not true. In reality, furnishing a 1099 to a contracted worker places the income tax burden on that individual, not on the company. Here’s how it breaks down.

How 1099 and W-2 Paychecks are Calculated

When an employer generates a W-2, they use information gathered from payroll data. This payroll data is almost never a flat rate, like $15 per hour. Instead, the information takes into consideration a slew of payroll taxes, which are administered on the local, state, and federal level. These taxes are deducted from an employee’s paycheck, and the employer then pays those taxes on behalf of the employee and business. These various taxes, which can change each year, are a primary reason for businesses switching to semi-automated payroll software tools, rather than performing manual calculations.

As a result of these deducted taxes, a W-2 may appear to report fewer earnings than a 1099. This, however, is not the case. While a business furnishing a 1099 to a contractor may appear to pay a flat rate, say $700 for a job, it is the responsibility of the contractor to then calculate and pay income tax from that payment. But, when a business employs a W-2 worker, they pay some Social Security tax on behalf of that employee. If a person is self-employed, they must pay the full Social Security tax themselves – 12.4% — and thus take more money out of their paycheck than a W-2 worker. In reality, a 1099 worker pays a higher tax rate than a W-2 employee.

So, in the match between 1099 tax rate vs W-2 tax rate, 1099 rates are often higher. Here’s how it stacks up.

  • W-2 Worker: Business/Client – 7.65%; Worker – 6.2%
  • 1099 Worker: Business/Client – no tax; Worker – 12.4%

From the business’s perspective, hiring a contracted worker this means fewer taxes paid. However, you cannot incorrectly classify an employee as a contracted worker. For more information about the differences between the two, check out our guide.


Alleviate the Headache with a Software Solution


W-2 and 1099 filing can be a complicated experience. Even if you invest in an payroll solution, like AMS Payroll, you’ll want a simple, easy-to-use filing software to expedite the accounting process. Advanced Micro Solutions has just the answer. Our W-2/1099 forms filer integrates with AMS Payroll to provide accurate, easily transferrable data, whether you’re compiling forms for an employee or a contractor. As a business, you won’t need to pay the 1099 tax rate vs w-2 tax rate discrepancy a second thought. The software tools can do that work for you.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.