What is the W2 vs 1099 Tax Difference?

If you want to start a new business, spend time learning about the W2 vs 1099 tax difference. As an employer, making sure that you hire the right people will determine your company’s success. It might involve hiring full-time or part-time employees. Other times, you may look to hire some independent contractors. Your business will compensate these workers in different ways.

Companies submit W2 and 1099 tax forms to the Internal Revenue Service each year. Below, we have outlined how these forms differ. We also will explain why tax software can help your business submit these forms with ease, while also saving your company money.



Tax Rules for W2 Employees

The big W2 vs 1099 tax difference relates to certain employer withholdings. For a W2 employee, you will pay them a regular wage with employee benefits. As an employer, you will also withhold the income taxes from each employee’s paycheck. Specifically, employers withhold all their W2 employees’ Social Security and Medicare taxes. Companies also pay employer payroll taxes.

Ultimately, there will come a point when you need to decide what type of worker is best for your business. If you want to start a small business, you may not want many employees. A number of small business owners prefer hiring independent contractors. Paying employment taxes and workers compensation insurance can diminish your business’s bottom line.


1099 Worker Tax Guidelines

For 1099 workers, the W2 vs 1099 tax difference is that employers do not withhold any money from contractors. All independent contractors must pay the IRS both employee and employer self-employment taxes. That means, if you hire contract workers, your business does not pay payroll taxes. Similarly, you do not need to offer them benefits since they are not eligible to receive them like employees. These include paid time off, overtime, and health insurance.

Not withholding income taxes or paying payroll taxes comes with specific benefits for your business. Your company will experience less of a paperwork burden. Nonetheless, your business can also invest in tax software. By doing so, you or your payroll department can efficiently complete all W2 and 1099 form filings.


Why Use Advanced Micro Solutions Software

Hiring W2 employees or 1099 workers is not a one-size-fits-all decision. All businesses, and even all small businesses, have different needs for their workers. Regardless of you or your future company’s decision, make sure to invest in tax software. Gone are the days when any business needs to do the books by hand, and it should remain that way.



Our W2 and 1099 Forms Filer Software generates all 1099, W2, and related forms. Company payroll specialists can import employee or worker data from multiple sources. These sources include Excel, ordinary tax files, and form print files. Despite any W2 vs 1099 tax difference, you can streamline the filing process with the right software. Our Table Report generates hash totals of SSNs and TINs. It will confirm your data entry accuracy to help you avoid any filing penalties. Need additional support? Check out our accounting and payroll software.

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.