What is the difference between a W-2 employee and a 1099 employee?

A W-2 employee is an employee whose taxes are withheld by the employer and whose earnings are reported to the IRS at the year-end via a W-2. The W-2 employee completes a form W-4 at the beginning of their employment to instruct the employer on how to withhold taxes.

A 1099 employee is in most cases a temporary employee (technically, not even an “employee”). Because they are not permanent, they do not need to complete a W-4 or have the employer withhold taxes.

A 1099 employee is responsible for paying their taxes directly to the IRS. The IRS requires that the employer report the earnings paid on a form 1099. The IRS would rather put the burden of tax withholding on the employer and therefore has fairly stringent rules regarding when someone can be considered a 1099 employee.