Employee (W-2) vs Contractor (1099) Pay Stubs: What Differs

The difference between a W-2 stub and a 1099 stub comes down to one question: who handles the taxes? For an employee, the employer withholds income tax, Social Security and Medicare from every paycheck, and the stub shows each amount. For an independent contractor, the business generally withholds nothing, so a contractor stub is simpler: it records what was paid, for what, and when, with a running total for the year.

Below we compare the two side by side and explain what a good contractor payment statement should include.

First, get the classification right

The stub follows the worker's status, not the other way around. Calling someone a contractor and issuing a 1099 stub does not make them one. The IRS looks at the whole relationship, grouped into three kinds of evidence (IRS: independent contractor or employee):

• Behavioral control: does the business direct or control what work is done and how it is done?
• Financial control: does the business control the business side of the job, such as how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies?
• Type of relationship: are there written contracts or employee-type benefits, is the relationship expected to continue, and is the work a key part of the business?

If you are unsure, the IRS lets businesses or workers request a determination with Form SS-8, and your state may apply its own test for wage and unemployment purposes. Settle the classification before you choose the stub type.

What a W-2 employee pay stub shows

An employee stub is built around withholding. A typical one includes:

• Employer and employee details, pay period and pay date
• Earnings by type: regular hours, overtime, bonuses, paid time off
• Pre-tax deductions, such as traditional 401(k) and cafeteria plan health premiums
• Federal income tax, based on the employee's Form W-4
• Social Security at 6.2% up to the annual wage base ($184,500 for 2026, per the SSA)
• Medicare at 1.45%, plus 0.9% Additional Medicare Tax withheld on wages over $200,000 in the calendar year (IRS Topic 560)
• State and local taxes where they apply
• Post-tax deductions, net pay and year-to-date totals

The employer also pays its own share of Social Security and Medicare and federal and state unemployment taxes. Those employer costs are usually not shown as deductions on the employee's stub.

What a 1099 contractor stub shows

The IRS states that a business generally does not have to withhold or pay taxes on payments to independent contractors. So a contractor statement has no federal income tax, Social Security or Medicare lines in the normal case. What it should show instead:

• Payer: your business name and address.
• Payee: the contractor's name or business name, and an ID reference rather than a full taxpayer ID number.
• What the payment covers: the invoice number, project or service period.
• Payment date and method (check, ACH, direct deposit).
• Gross amount paid, with line items if the invoice had several.
• Any amounts withheld, such as backup withholding (see below), or agreed offsets.
• Net amount paid, which normally equals the gross amount.
• Year-to-date total paid to this contractor.

Keep reimbursed expenses on separate lines from fees for services. That keeps your records clear when you prepare year-end forms.

When a contractor stub does show withholding

Backup withholding is the main exception. If a contractor fails to give you a correct taxpayer identification number, payers generally must withhold at the current rate of 24% and send it to the IRS (IRS: backup withholding). Collecting a signed Form W-9 before the first payment avoids this in most cases. When backup withholding applies, show it as its own line on the statement.

Why the YTD total matters for contractors

The year-to-date total on a contractor statement is not just a convenience. It tells you when you need to file an information return. For tax years beginning after 2025, the threshold for reporting nonemployee compensation on Form 1099-NEC rose to $2,000, and it may be adjusted for inflation starting in 2027 (IRS Instructions for Forms 1099-MISC and 1099-NEC). Payments for 2025 still used the earlier $600 threshold. An accurate running total makes that call easy in January.

What contractors should know about their own taxes

Because nothing is withheld, contractors handle their own taxes. According to the IRS, self-employment tax is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare, and generally applies to 92.35% of net earnings from self-employment when those earnings are $400 or more (IRS Topic 554). Many contractors also make quarterly estimated tax payments.

If you are self-employed and pay yourself, a consistent statement for each payment you receive from clients, and for each draw you take, makes bookkeeping and tax time much easier. Your accountant can reconcile statements against bank deposits and invoices in minutes instead of hours.

Side-by-side summary

• Tax withholding: W-2 stubs withhold federal, state, Social Security and Medicare taxes. 1099 statements generally withhold nothing, except backup withholding.
• Deductions: W-2 stubs can include benefits and retirement deductions. Contractors do not receive employee benefits through payroll.
• Pay basis: employees are paid wages by pay period. Contractors are paid by invoice, project or milestone.
• Year-end form: employees receive Form W-2. Contractors receive Form 1099-NEC when payments reach the reporting threshold.
• YTD: both should carry year-to-date totals.

Common mistakes to avoid

• Withholding FICA from a contractor. Social Security and Medicare withholding belongs on employee stubs only.
• Mixing W-2 and 1099 pay for the same person in the same period without a clear reason. If someone truly is both (for example, an employee who also does separate contract work), keep two separate records.
• Leaving out the work period or invoice reference. Without it, a payment is hard to match to the work later.
• Showing a full Social Security number or bank account number. Use the last four digits.

Create the right stub for each worker

PayStubNest supports both employee pay stubs with federal and state withholding and contractor (1099) stubs with no payroll taxes and a running year-to-date total. Start a new stub, choose the worker type, and preview it free before you pay. For more on classification and record-keeping, see our guides and FAQ.