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How does a 1099 differ from a W-2 when filing taxes?

In terms of federal taxable income, whether you earn X as a contractor or employee, youll pay the same amount of tax. The distinction between the two is payroll tax. If you are an employee and take a look at your pay stub, youll see deductions for social security (6.2%) and medicare (1.45%). This 7.65% of your gross pay, collectively called FICA, is withheld from your pay and matched by your employer (i.e. you pay half, your employer pays half). Collectively, 15.3% of your gross pay is forwarded by your employer on to the federal government on your behalf. When you are self employed, there is no employer to perform this matching, so you get to become the employer. When you submit or pay FICA to the government, it will all be out of your own pocket at the rate of 15.3%, instead of your employee counterpart, who paid 7.65%. This matching amount is commonly called self-employment taxes. Notes: In 2018, the social security cap is $128,700 (i.e. no social security taxes are assessed on wages earned in excess of the cap). Please note you can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax.

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