Whether you are an employee or an independent contractor changes how your taxes work, and it isn't always your choice.
Employee
Your employer withholds income tax, Social Security and Medicare, and pays half of the Social Security and Medicare tax. You get a W-2 at year-end.
Independent contractor
Nothing is withheld. Clients generally send a 1099-NEC if they paid you at least $2,000 during 2026 (the threshold was $600 for payments through 2025). You owe the full 15.3% self-employment tax plus income tax on your net earnings, and you should make quarterly estimated payments if you will owe $1,000 or more. Income is taxable whether or not you receive a 1099.
What decides your classification
The IRS looks at behavioral control, financial control and the type of relationship. Does the company control how and when you work? Does it supply your tools? Is the arrangement ongoing? Treating employees as contractors to avoid payroll taxes is a major IRS enforcement priority. If you think you have been misclassified, you can file Form SS-8 to ask the IRS for a determination.
The tax math difference
On $60,000 of income, an employee pays about $4,590 in Social Security and Medicare (the employer pays the other half). A contractor with $60,000 of net earnings pays about $8,478 in self-employment tax, nearly double, plus income tax. Knowing this helps you set contractor rates that cover your real cost.
IRS resource: Independent contractor (self-employed) or employee?
General education only, not advice for your specific situation. Figures checked October 2026. Tax law changes, so confirm current figures at IRS.gov or ask us.