W2 vs 1099 vs C2C: Contractor Types Compared
W2, 1099, and C2C describe how a developer is legally engaged and paid. A W2 worker is a direct employee with taxes withheld by the employer. A 1099 worker is an independent individual contractor who handles their own taxes. A C2C worker is paid through their own registered company rather than as an individual.
How It Works
The three classifications differ in who the hiring company pays, who withholds taxes, and how much control the hiring company has over the work. W2 gives the most control but carries the most employer obligations; 1099 and C2C trade some of that control for lower administrative overhead.
- W2 — the developer is a direct employee; the employer withholds income tax, Social Security, and Medicare, and typically provides benefits.
- 1099 — the developer is an independent contractor paid as an individual; they handle their own self-employment taxes and receive a 1099-NEC at year-end.
- C2C — the developer's own company is paid, not the individual; the engagement is business-to-business, with no withholding on the hiring company's side.
How It Compares
W2 vs 1099 vs C2C at a glance
| W2 | 1099 | C2C | |
|---|---|---|---|
| Who's paid | The individual, as an employee | The individual, as a contractor | The contractor's company |
| Tax withholding | Employer withholds | Individual self-pays | Business-to-business, no withholding |
| Typical use case | Long-term, full control | Short-term individual contract work | Contractor operates their own entity |
Why It Matters When Hiring Developers
The classification you choose affects cost, compliance risk, and how quickly you can start an engagement. Misclassifying a worker — treating someone who should be a W2 employee as a 1099 or C2C contractor — can create real legal and tax exposure, so matching the model to the actual working relationship matters as much as matching it to budget.
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Related Terms
Frequently Asked Questions
1099 and C2C are typically cheaper on paper because the hiring company doesn't pay employer payroll taxes or benefits. W2 costs more upfront but carries the least misclassification risk for long-term, closely supervised work.
Yes — a contractor can register a business entity and move from being paid as a 1099 individual to being paid C2C through that company, which changes how they're taxed but not the actual work being done.
Both reduce the hiring company's direct control compared to W2 employment. How the work is scheduled, directed, and evaluated — not just how it's paid — is what actually determines correct classification.