1099 vs. W2 – What’s the Difference?
How you get paid for your services matters! If you want to do relief work or pick up an extra shift at a vaccine clinic, the taxes can be confusing.
For veterinary professionals offering relief services or other contract work, a common dilemma is whether it is better to be paid as an independent contractor (1099) or treated as an employee (W2).
What is 1099 employment?
1099 refers to the IRS form a business will file when they make payments to someone who is not an employee. Typically, if a business pays you more than $600 in a calendar year for veterinary services, you will receive a 1099 form. The business files a form with the IRS and sends you a copy. This form of employment is common for veterinarians who offer relief services, since they are not employees of the clinic.
What is W2 employment?
W2 refers to the IRS form a business will file to report wages paid to an employee. On this form, they will report the wages, taxes withheld (including Social Security and Medicare), and outline some benefits received such as retirement.
What are the major differences between the two?
The biggest difference is with taxes.
With a W2, the employer will be withholding federal and state taxes for the employee. The employer pays half of the taxes owed for Social Security and Medicare, while the employee pays the other half.
With a 1099, no taxes are withheld and the independent contractor will have to pay taxes directly to the IRS and the state. In this scenario, the independent contractor is also liable for the full Social Security and Medicare tax (~15%).
Advantages and disadvantages
W2 employment makes your life simple, since the employer will help you with taxes and may provide benefits like access to a 401(k) plan or continuing education. That said, if you do not receive benefits from your W2 job, you may be better off working as a contractor and receiving a 1099, since some benefits may be used as a tax deduction.
With 1099 employment, you do the bulk of the bookkeeping work. In many cases, this means keeping track of payments and expenses for tax season. If you’re working full time as an independent contractor (such as a full-time relief vet), you should pay taxes on a quarterly basis to avoid having to pay penalties to the IRS. There is more flexibility with 1099 employment, including creating your own schedule and electing your own benefits. If you are considering doing 1099 work, it is wise to consult an accountant to figure out if you may benefit from a particular business entity structure and streamline your bookkeeping.
Which is better? It’s not an easy decision. W2 is usually a secure and consistent position, while 1099 is more flexible but may require more attention and planning.
Understanding how you get paid is important because it can affect your taxes, student loan payments (if on an income driven repayment plan), and access to retirement accounts.
Don’t be afraid to ask for help. A good accountant can save you hundreds or thousands of dollars in taxes.
Willie Bidot, DVM, DACLAM
Meredith Jones, DVM