Navigating the world of taxes can be daunting, especially when distinguishing between the tax obligations as an independent contractor vs employee (100 vs W-2). At The Clarity Agency, we’re committed to demystifying these processes so you can make informed decisions. Whether you’re an employee or contractor, understanding these distinctions is crucial for compliance and financial planning.

How Taxes Work For W-2 Employees:

If you’re a W-2 employee, your tax obligations follow a structured path:

1. W-4 Form Submission:

Before starting a new job, employees must complete a W-4 form. This form directs your employer on how much federal income tax to withhold from your paycheck. Accurate completion ensures proper withholding throughout the year, reducing the risk of underpayment or overpayment at tax time. Unfortunately, employers can’t help you fill these out. If you’re not sure how to fill your W-4 out, if you got a raise, or had a big life change (e.g. got married, had a baby, took a second job, etc.) then it’s a smart idea to seek a consult with a tax professional. A tax professional can tell you how to properly fill out your W-4 in a Power Hour to reduce the chance that you underpay and owe taxes at the end of the year.

2. Receiving a W-2:

At the end of the year, you’ll receive a W-2 form from your employer. The W-2 summarizes your annual earnings and the taxes withheld. An employer will have their bookkeeper issue these for each of their employees by January 30th. This form is essential for filing your tax return, as it provides necessary information about your income and taxes already paid.

3. Paying & Filing Taxes As A W-2 Employee:

Employees have their taxes withheld from their paychecks throughout the year, covering federal income tax, Social Security, and Medicare. If you live in a state with state tax, you may see that withheld as well. Here in Florida, we don’t have to worry about state tax. When filing your personal tax return on April 14th, the information from your W-2 helps determine if you owe additional taxes or are eligible for a refund.

4. Expense Deductions:

Generally, employees cannot deduct job-related expenses on their tax return. However, there are exceptions for specific professions. For instance, teachers can deduct up to $300 for classroom supplies and other qualifying expenses. This limited deduction helps offset costs directly related to their profession. If you think you might be eligible to claim job-related deductions, mileage, etc. we recommend you seek a Florida tax professional to help ensure you don’t miss any deductions.

How Taxes Work For 1099 Contractors:

Taxes work very differently as a contractor vs employee. As a 1099 independent contractor, your tax responsibilities and forms differ significantly from those of employees. The tax responsibilities fall primarily on you, not your employer. Let’s go over what that looks like for you:

1. W-9 Form Submission:

Before beginning work, 1099 independent contractors must fill out a W-9 form. This form provides your clients with your correct Taxpayer Identification Number (TIN) and certification that you are not subject to backup withholding. It’s a prerequisite for receiving payments and helps clients report your earnings to the IRS. If you’re a sole proprietor or LLC and are not sure if you’d be considerent a 1099 contractor, consult with a tax professional on how to navigate this.

2. Receiving a 1099-NEC:

At the end of the year, independent contractors receive a 1099-NEC (Nonemployee Compensation) form from each client who has paid them $600 or more. The 1099-NEC reports the total amount of income earned from that client. Unlike the W-2, the 1099-NEC does not include tax withholdings, which means contractors must handle their own tax payments.

3. Paying and Filing Taxes As A Contractor:

Independent contractors are responsible for paying their own taxes. This includes making quarterly estimated tax payments at the end of the year, contractors file their personal tax return using form Schedule C, which details income and deductible expenses related to their business activities.

4. Expense Deductions:

One of the advantages of being an independent contractor is the ability to deduct business-related expenses. This includes costs for supplies, equipment, home office expenses, and other necessary expenditures. Keeping thorough records and receipts is vital for accurately claiming these deductions. If you’re new to being a contractor, it’s a good idea to seek out a tax professional who can help you understand all the deductions and recordkeeping you need to do throughout the year.

5. Taxed as a Sole Proprietor:

Most independent contractors operate as sole proprietors, meaning they are responsible for paying both the employer and employee portions of Social Security and Medicare taxes. This is why the self-employment tax rate is higher.

It’s Important To Know How Taxes Work As An Independent Contractor vs Employee

Understanding the tax obligations as an independent contractor vs employee is crucial for both compliance and financial planning. Employees must complete a W-4, receive a W-2, and pay taxes throughout the year, while independent contractors need to fill out a W-9, receive a 1099-NEC, and handle their own tax payments and deductions. At The Clarity Agency, we provide expert guidance to help you navigate these complexities effectively.

Jacksonville, Florida Bookkeeping and Tax Prep

For personalized assistance with tax forms, deductions, or other tax-related queries, reach out to The Clarity Agency today. We’re here to help you understand your responsibilities and optimize your tax situation. We’re based in Jacksonville and help small business owners, individuals, and contractors across Florida. Let us support you in making informed financial decisions and staying compliant with tax regulations.

Send us a message today for a free, no obligation 30-minute clarity call. And if you know of anyone who could use some extra clarity in their finances, be sure to refer them!

Written by: Sofia Ritz, Social Media Intern
Edited: October 2, 2025