Filing Taxes as a W-2 Employee AND a 1099 Independent Contractor
If you work as both an employee and an independent contractor, filing taxes might seem confusing or intimidating. However, a little knowledge and preparation can make the whole process much less stressful.
Below, we’ll break down the differences between being a W-2 employee and 1099 independent contractor. We’ll also outline some important considerations for tax season.
Important disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. If you have questions about your specific tax situation, we advise you to consult a tax professional who can provide advice tailored to you.
Understanding the Basics
What is a W-2?
If you are an employee, you should receive a W-2 from your employer for any income earned during the tax year that had federal income tax, Social Security, or Medicare tax withheld—regardless of how much you earned. A W-2 is a form that reports your annual wages and the taxes that have been withheld. One copy goes to you and one copy goes to the IRS.
As an employee, your employer withholds taxes directly from your paycheck throughout the year. These taxes include federal and state income taxes, as well as Social Security and Medicare (or FICA) taxes. The FICA tax rate is 15.3%. You are responsible for half (7.65%) and your employer pays the other half.
Employers also pay a 1.2% State Disability Insurance (SDI) tax on your behalf, so you are eligible for SDI benefits based on W-2 income.
What is a 1099?
If you are an independent contractor, you should receive a 1099-NEC from every business that paid you at least $600 for services during the year. The 1099-NEC is a form that reports the compensation paid by a business to an independent contractor. One copy goes to you and one copy goes to the IRS.
As an independent contractor, no taxes are withheld from your compensation unless you are subject to withholdings. You are also responsible for paying the full 15.3% FICA taxes as self-employment tax.
1099 income is not subject to the SDI tax. As a result, 1099 income will not be included in calculations for SDI benefits.
Filing Implications: W-2 Employees vs. 1099 Independent Contractors
Many people in creative industries or project-based work juggle both W-2 and 1099 income. This is a common situation that is definitely manageable with appropriate planning and organization. Having both kinds of income can offer flexibility and more diverse income streams, but it does mean you must navigate a more complex tax situation. It’s important to be aware of the filing implications for mixed W-2 and 1099 income and to have a plan for keeping the necessary records organized for tax season.
Independent Contractors (1099 Workers)
Tax Forms
You will receive a 1099-NEC from each business that paid you $600 or more during the year as a non-employee. No taxes are withheld from this income.
Tax Withholding & Filing
Track 1099 income separately from W-2 income. Keep detailed records of business-related expenses like home office costs, equipment, travel, and supplies. Hold onto receipts and invoices to support deductions.
Because taxes are not withheld from 1099 income, you are generally required to make quarterly estimated tax payments if:
You expect to owe at least $1,000 in federal income tax, and
Your withholding and credits won’t cover at least 90% of your current-year tax liability or 100% of last year’s.
As previously mentioned, 1099 income is subject to self-employment tax. The 2025 self-employment tax rate is 15.3%. Make sure to account for this when budgeting throughout the year.
W-2 Employees
Tax Forms
You will receive a W-2 from each employer that paid you as an employee during the year. Each W-2 will report your wages, along with federal, state, Social Security, and Medicare taxes that were withheld.
Tax Withholding & Filing
Your taxes are automatically withheld from your paycheck throughout the year. You typically do not need to make estimated tax payments unless you have other sources of untaxed income. Make sure to include every W-2 you receive when filing your tax return.
Tips to help you through tax season (and all year)
Use separate bank accounts. Separating your W-2 income and 1099 income in different bank accounts can help streamline your tracking of income and expenses.
Set aside money for taxes. It can be helpful to have a separate savings account where you set aside money for taxes. A general rule of thumb is to save between 10-30% of your 1099 income for taxes.
Understand deductions. Track your expenses and keep all your receipts. Check with a tax advisor to take full advantage of deductions related to your 1099 income.
Don’t be afraid of getting professional advice. A tax professional can help you maximize your deductions and minimize your liabilities.