W-2 vs 1099 vs C2C: What Contract Workers Should Know Before Accepting a Role

W-2, 1099 and C2C describe three different ways to be paid for contract work. On W-2, you are an employee of the staffing firm or client, and the employer withholds taxes. On 1099, you are an independent contractor who handles your own taxes. On C2C (corp-to-corp), your own company invoices the staffing firm or client. The hourly number on the offer only means something once you know which of the three it is.

This guide is for IT and professional contractors comparing offers, and for anyone a recruiter has asked, “Are you open to W-2 or C2C?” It is general information, not tax or legal advice.

The short answer: how W-2, 1099 and C2C differ

The rest of this guide explains what each one means in practice, why the same hourly number is worth different amounts, and what to ask before you sign.

What is a W-2 contract?

On a W-2 contract you are an employee, usually of the staffing firm that places you with the client. The IRS explains that employers generally must withhold and deposit income tax, Social Security and Medicare taxes from employee wages, pay the matching employer share, and pay unemployment tax. That is the main practical difference from the other two models: someone else runs payroll and pays part of the tax bill.

W-2 contract roles may also come with benefits, such as a health plan, paid holidays or a retirement plan, depending on the firm and your eligibility. In New Jersey, most employees, including temporary employees, earn paid sick leave under state law: one hour for every 30 hours worked, up to 40 hours a year, according to the New Jersey Department of Labor (as of November 2026).

When W-2 makes sense

• You want predictable take-home pay without quarterly estimated taxes.
• You value benefits more than a higher gross rate.
• You don’t want to run a business or track business expenses.
• The role is a contract or contract-to-hire position where conversion to the client’s payroll is possible later.

What is a 1099 contract?

On a 1099 arrangement you are treated as an independent contractor. The payer generally does not withhold or pay employment taxes for you. Instead, you report the income and pay self-employment tax yourself. The IRS puts the self-employment tax rate at 15.3%: 12.4% for Social Security and 2.9% for Medicare. For 2026, the Social Security part applies to the first $184,500 of combined wages and net self-employment earnings. You can deduct the employer-equivalent portion when calculating adjusted gross income, and you may need to make quarterly estimated tax payments.

You also cover what an employer normally would: health insurance, retirement savings, unpaid time between projects, equipment and sometimes professional liability insurance.

What is C2C (corp-to-corp)?

Corp-to-corp means your own company, typically an LLC or corporation, signs a contract with the staffing firm or client and sends invoices. You are not on their payroll at all. Your company pays you, handles its own tax filings and carries the costs of running a business, such as accounting, insurance and registration fees.

C2C is common in IT contracting, especially for experienced independent consultants who work with several clients. Many staffing firms only accept C2C from established businesses, and some clients do not allow it.

Does the label decide whether you’re an employee?

No. Calling someone a contractor does not make them one. The IRS says the key is the degree of control and independence across the whole relationship, grouped into three categories: behavioral control (does the company control how the work is done?), financial control (who controls the business side, such as expenses, tools and how you are paid?) and the type of relationship (contracts, benefits, permanence). No single factor decides it.

New Jersey goes further. Under the state’s “ABC test”, a paid worker is presumed to be an employee unless the business can prove all three parts: the worker is free from control, the work is outside the usual course or places of the business, and the worker has an independently established trade or business. NJDOL adopted rules restating the test, which became operative on October 1, 2026. NJDOL also notes that receiving a 1099 instead of a W-2 does not by itself mean you are properly classified.

The form you receive at tax time follows the relationship. It doesn’t define it.

How to compare a W-2 offer with a 1099 or C2C offer

An hourly rate is only comparable once you add up what comes with it. Use the same checklist for each offer:

1. Taxes: who pays the employer share of Social Security and Medicare?
2. Benefits: health coverage, paid leave, holidays and retirement contributions, and when eligibility starts.
3. Paid and unpaid time: are holidays paid? What happens if the client closes for a week?
4. Overtime: on W-2, ask how overtime is treated for your role.
5. Length and notice: the expected assignment length and how much notice either side gives.
6. Business costs: on 1099 or C2C, your insurance, accounting and equipment.
7. Payment terms: on 1099 or C2C, how long after invoicing you get paid.

Questions to ask the recruiter before you accept

• Who is the employer of record, and who signs my paychecks?
• Is this rate W-2, 1099 or C2C, and is it hourly or a fixed amount?
• Which benefits am I eligible for, and from what date?
• How long is the assignment expected to last, and is conversion possible?
• Is the end client’s name disclosed, and where will my resume be sent?

A legitimate recruiter will answer these plainly. If you get vague answers, or someone asks you to pay a fee to be considered, slow down. Our candidate resources cover what to share and when.

How we handle it at Entrustech

When we discuss a contract role, we tell you the employment type and who the employer of record will be before your resume goes anywhere. We’ll ask which arrangements you’re open to and record it with your profile, so you aren’t pitched a structure you’ve already ruled out. If a role converts to the client’s payroll, we explain the known conversion terms up front. You can read more about each step in our recruiting process.

Thinking about the employer side of the same decision? Our guide to staff augmentation vs outsourcing explains how companies choose between adding contractors and outsourcing a project.

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