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Contractor guide
US contract jobs come in a few flavors: W2, 1099, corp to corp and contract to hire. They change who pays taxes and benefits, and how much your hourly rate should be. Here is what each one means.
| W2 contract | 1099 contract | Corp to corp (C2C) | |
|---|---|---|---|
| Who you work for | Employee of the staffing firm or client | Yourself, as an independent contractor | Your own company (LLC or S corp) |
| Who withholds taxes | The employer | You, through estimated payments | Your company |
| Employer share of payroll taxes | Paid by the employer | Paid by you (self employment tax) | Paid by your company |
| Benefits | Sometimes offered by the staffing firm | None, you buy your own | None, your company provides them |
| Typical hourly rate | Lowest of the three | Higher than W2 | Usually the highest |
| Paperwork | Simple, like a regular job | Invoices, bookkeeping, quarterly taxes | A business to run |
Most US contract jobs posted by staffing firms are W2. You are on the payroll of the staffing firm for the length of the assignment, taxes are withheld from each paycheck and the employer pays its share of Social Security and Medicare. Some firms also offer health insurance or a retirement plan.
As a 1099 independent contractor you invoice the client or the agency and receive the full amount. You pay self employment tax, set aside money for income tax, and buy your own insurance. In exchange you control how you work and can deduct business expenses.
With C2C, the contract is signed between your company and the client or staffing firm. It is common for senior IT consultants who run an LLC or S corp. Many job posts state "no C2C" when the client only accepts W2 contractors.
Contract to hire roles start as a contract and can turn into a permanent job. They usually pay on W2 during the contract phase. Ask early about the conversion timeline and the salary range after conversion.
This guide gives general information, not tax or legal advice. Check your situation with a tax professional.
Compare a W2 and a 1099 rateWhat is the difference between W2 and 1099?
On W2 you are an employee and your employer withholds taxes and pays its share of payroll taxes. On 1099 you are self employed: nothing is withheld and you pay both halves of Social Security and Medicare through self employment tax.
Why do 1099 and C2C contracts pay more per hour?
Because you carry costs the employer pays on W2: the employer share of payroll taxes, health insurance, retirement, paid time off and the risk of gaps between contracts.
What does corp to corp (C2C) mean?
Corp to corp means the client or staffing firm pays your own company instead of you as a person. It requires a registered business and is common for experienced IT consultants.
What is contract to hire?
A contract to hire job starts as a contract, usually on W2 through a staffing firm, with the intention of a permanent offer after a trial period.
How do I compare a W2 rate with a 1099 rate?
Add the employer payroll taxes and the value of the benefits and paid time off you would lose. Our W2 to 1099 rate calculator does the math for you.
