Texas First Hire

1099 vs W-2: What Each Form Means for Your First Worker

By Jeremy Kenerson, Founder and CEO at DeskTeam360

Last updated . Every number on this page was checked October 2, 2026.

1099 vs W-2 comes down to two IRS tax forms. A business files a Form W-2 for each employee. It uses Form 1099-NEC to report what it paid for services to a person who isn't its employee, such as an independent contractor. Form 1099-NEC is due on or before January 31, and Form W-2 for 2026 wages is due by February 1, 2027.

You don't pick 1099 or W-2. The Texas Workforce Commission says the correct worker classification determines which form you should use.

This page is a plain reading of the rules. It isn't legal or tax advice.

What is 1099 vs W-2?

1099 and W-2 are two IRS tax forms, and each one goes with a different kind of worker.

  • Form W-2 is for employees. The IRS says every employer that pays an employee for services must file a Form W-2 for that employee.
  • Form 1099-NEC is for people who aren't your employees. A business uses it to report nonemployee compensation. That's what it paid for services to a person who isn't its employee.

So people say "W-2 worker" for a person whose pay is reported on a Form W-2, and "1099 worker" for a person whose pay is reported on a Form 1099-NEC. The form doesn't decide which kind of worker a person is. The tests do.

Texas puts that in plain words. The Texas Workforce Commission says: "A worker who is called contract labor and whose wages are reported using IRS Form 1099 may not be an independent contractor. The form you use does not determine the correct worker classification. The correct worker classification determines which form you should use."

The IRS also says that, generally, a business doesn't use Form 1099-NEC to report wages and other pay to employees. Those go on Form W-2.

What is the difference between a 1099 worker and a W-2 employee?

The difference between a 1099 worker and a W-2 employee starts with the form that reports the pay: a Form 1099-NEC for the first, and a Form W-2 for the second. What you owe follows the kind of worker. For an employee, the IRS says you generally must withhold taxes and pay employer taxes. For an independent contractor, the IRS says you generally don't have to withhold or pay any taxes on the payments. The form doesn't settle which one you have: as the Texas quote above says, a worker whose pay is reported on a Form 1099 may not be an independent contractor.

Table: An employee (Form W-2) next to an independent contractor (Form 1099-NEC). Sources: IRS pages and form instructions, read October 2, 2026.
Employee (Form W-2) Independent contractor (Form 1099-NEC)
Form the worker gives you first Form W-4, so you can withhold the right federal income tax Form W-9. You keep it in your files for four years
Who withholds tax from the pay You generally must withhold income tax, Social Security tax and Medicare tax You generally don't have to withhold
Employer taxes You generally must pay the matching employer share of Social Security and Medicare, plus unemployment tax You generally don't have to pay any taxes on the payments
Form you file after the year ends Form W-2, for each employee Form 1099-NEC, for each person you paid at least $2,000 during the year. That amount is for tax years that begin after 2025
When that form is due For 2026 wages: February 1, 2027 On or before January 31

The table shows what follows from each kind of worker. It doesn't tell you which kind you have. The IRS and the Texas Workforce Commission each have a test for who counts as a contractor. Both agencies say that treating an employee as a contractor can lead to more taxes. For who counts as an employee or a contractor, see independent contractor vs employee.

If your first worker would do production work, there's one more route. You can buy the work from an outside team. DeskTeam360, the company that runs this site, is one. Its plans run month to month, with no contracts.

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What does the IRS say about 1099 vs W-2?

The IRS ties each form to a kind of pay: Form W-2 to what an employer pays an employee for services, and Form 1099-NEC to nonemployee compensation. On its page about contractor forms, the kind of worker comes before any form: the page starts with the words "If you've made the determination that the person you're paying is an independent contractor".

If the person is a contractor:

  1. Have the contractor fill out Form W-9. The IRS calls this the first step. You keep the form in your files for four years.
  2. Report the year's pay on Form 1099-NEC. The IRS instructions set $2,000 as the line: file the form for each person you paid at least that much during the year. That line is for tax years that begin after 2025, and the IRS says it may be adjusted for inflation starting in 2027.

If the person is an employee:

  1. Have the new employee fill out Form W-4, so you can withhold the right federal income tax.
  2. File a Form W-2 for that employee after the year ends.

For the steps to bring on a contractor, see hire independent contractor. For an employee in Texas, the first-hire steps list each office, form and deadline in order.

1099 vs W-2 taxes: who pays what?

The IRS says you generally must withhold tax from an employee's pay and pay employer taxes too, and that you generally don't have to do either for an independent contractor.

For an employee, the IRS says a business generally must:

  • withhold income tax, Social Security tax and Medicare tax from the wages
  • pay the matching employer share of Social Security and Medicare
  • pay unemployment tax on the wages

For an independent contractor, the IRS says a business generally doesn't have to withhold any taxes from the payments, or pay any on them.

Here are the employer rates in short. Social Security is 6.2% on wages up to $184,500 in 2026. Medicare is 1.45% on all wages. Federal unemployment tax is 6.0% on the first $7,000 of each worker's pay, or 0.6% with the full state credit. The monthly math for a Texas hire is on what a first hire costs a month.

Texas adds one tax and leaves one out. For a new Texas employer, state unemployment tax is 2.70% in 2026, and it applies to the first $9,000 each worker is paid in the year. Texas doesn't tax people's income, so no state income tax comes out of a paycheck.

This page doesn't say either path costs less. The taxes follow the kind of worker, and the tests decide the kind of worker. For part-time help either way, see part time employee vs independent contractor.

Not legal or tax advice. Ask your accountant. DeskTeam360 doesn't do payroll, and this site doesn't offer payroll, legal or tax help.

When are W-2 and 1099 forms due?

Form 1099-NEC is due on or before January 31, and Form W-2 for 2026 wages is due by February 1, 2027.

  • Form 1099-NEC: the IRS instructions say it's due on or before January 31. If that day is a Saturday, a Sunday or a legal holiday, it's due the next business day.
  • Form W-2: for 2026 wages, the IRS instructions say to file Forms W-2 with the Social Security Administration by February 1, 2027. The instructions say that, generally, employees must get their copies by the same date.

Those are the dates as the IRS states them. The W-2 date here is for 2026 wages only, so ask your accountant about any other year.

Those aren't the first forms on either side. A new employee fills out Form W-4, and the IRS calls Form W-9 the first step with a contractor.

More on employee or contractor

On a call, DeskTeam360 can tell you whether its team fits the work you'd hand a first worker.

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Sources

All checked October 2, 2026.

This site isn't connected to the State of Texas or any government agency.

What changed

  • October 2, 2026: First version of this page.