W-2 employee

The employer runs payroll, withholds income tax and payroll contributions, and typically controls when and how the work is done. That is the opposite of a 1099 contractor, who is paid outside payroll as a self-employed worker. The form name is a tax label. The real classification still depends on the working relationship, not on what the contract calls the person.

Key takeaways

• Payroll employee: A W-2 employee receives wages through payroll with tax and FICA withheld by the employer.
• Form W-2 reporting: The employer reports annual wages on Form W-2; the employee uses it to file their tax return.
• Employer control: W-2 workers typically have set hours, assigned tasks, and employer direction over how work is done.
• Label vs reality: Calling someone a W-2 employee does not settle classification — the actual working relationship determines whether they are truly an employee or a misclassified contractor.

Common questions

What is a W-2 employee?

A W-2 employee is a US worker treated as an employee for tax purposes, with wages reported on Form W-2. The employer withholds tax and payroll contributions rather than paying the person as a contractor.

How does a W-2 employee differ from a 1099 contractor?

A W-2 employee is paid through payroll with tax withheld and typically works under employer direction. A 1099 contractor is paid outside payroll, handles their own tax, and usually sets more of their own hours. The form name reflects how pay is reported, but the actual working relationship — not the label — determines the correct classification.