Everyone in the workforce comes into contact with either a W2 or 1099 tax form at some point. These two tax forms represent the two sides of the employment coin; full-time (or part-time) and contract work, respectively. For some, the stability of full-time employment is appealing. For others, the flexibility of contract work fits their lifestyle better. So, W2 or 1099; what are the pros and cons of each, and which is suitable for you?
W2 pros: more stability than 1099.
As mentioned, full-time W2 workers enjoy the stability that 1099 gig work can’t offer. They are entitled to benefits such as health insurance, paid time off (PTO), and sick leave. Additionally, W2 employees usually receive refund checks during tax season, as their employers deduct taxes from each paycheck. However, this is not always the case. And generally, full-time employees expect periodic raises and room for career advancement over time.
Employers require W2 employees to be at a specific place at a specific time. They also (usually) require you to use PTO or sick leave if you need to do something during work hours. Additionally, W2 employees are entitled to fewer tax write-offs than 1099 contractors.
1099 pros: flexibility that W2 employment can’t offer.
Forbes reports that 36% of the United States workforce participates in the gig economy. 1099 contract work offers flexibility that full-time employment simply cannot. You set your own hours and pay rate and decide what work you do and for whom. Additionally, as a 1099 contract worker, you are entitled to a slew of tax deductibles that W2 employees are not. Health insurance premiums, travel (and meals while traveling), and home offices are all deductible as a 1099 contract worker.
1099 contract work means you’re part of the gig economy. Which, in turn, means you aren’t guaranteed steady employment. Finding work is on you. You are also responsible for filing your own taxes and saving enough from your compensation to pay them. Additionally, you lose out on forming meaningful relationships with coworkers if you don’t have any.