- Self-employed independent contractor income.
- Employee with a regular wage, benefits and employer-withheld taxes.
More Details On The Difference
From a tax perspective, the primary difference between 1099 income and W2 income is that 1099 income must pay their own taxes that are normally withheld by an employer automatically when they pay an W2 employee a salary.
This is the biggest reason why many freelancers struggle to manage their tax obligations on their own, because at a normal "job" the taxes are automatically taken care of by the employer's payroll provider when a W2 wage is paid.
Because of this extra financial burden, it's common for freelancers and other self-employed individuals to leverage software, accounting solutions and tax accountants to help them manage their tax obligations. This is also why it's commonly understood that freelancers must set aside money for taxes every year.
For more information on managing freelance taxes, take a look at the Overview of Bonsai's Tax Resources.