It’s tax season, and you need to know if you’re a W2 vs. 1099 employee. Most trucking companies have an employment contract with their workers that outlines what type of employee they are. This classification is crucial for IRS purposes, and each classification comes with its own benefits.
If you have chosen a career in trucking, it’s important to know the distinction. And if you’re just starting out in your trucking career, or you’re thinking about changing companies, understanding the difference between a W2 employee and a 1099 worker can help you make decisions about where you want to work.
The classification comes down to W2 Employees or 1099 Workers (independent contractors) for taxes and the IRS. Both of these represent two forms that relate to the earnings you make from your employment. The W-2 form is for when your employer classifies you as an employee, while the 1099-MISC form is for when you are an independent contractor.
Let’s look at what each type of employment is and the benefits and drawbacks of both options.
What is a W2 Employee?
W2 employees are everyday workers that work for an employer in exchange for a set salary. For trucking companies, W2 employees are company drivers who get a steady paycheck based on a contractual wage. These wages are subject to all applicable federal and state taxes.
Typically, employers are in control of working hours and type of work for W2 employees. As a trucker, you have more control over your working hours than most W2 employees, but your employer still determines your days on and off the road.
When classifying you as a W2 employee, your employer will take all these factors into consideration. This affects them because, as the employer of a W2 employee, they are typically responsible for deducting taxes from your paycheck.
The Benefits of Being a W2 Employee
As a W2 employee, you get the same benefits as any employee can expect from their employer. However, there are some advantages that you will have that you don’t get as a 1099 worker.
As a W2 employee, you don’t need to worry about deducting taxes from your paycheck and managing as many tax forms as a 1099 worker. This will save you a lot of time and headache come tax season.
Working as a W2 employee, you’ll receive company benefits. These benefits will depend on what your company offers. Trucking companies often provide medical, vision, dental, and 401k. Many companies also offer paid vacation.
As a W2 employee, you get much better job security compared to independent contractors. You also get consistent income even when your employer doesn’t have any work for you, depending on how you are paid. So, even if there are no deliveries for you to complete, your employer is still contractually obligated to pay you. This doesn’t apply to drivers who are paid by the mile.
As a W2 employee, you have much better legal rights compared to 1099 workers. While these rights may depend on the state where you are working, you still have better protection. For trucking jobs in California, for example, you get the right to fair wages, a safe workplace, redundancy payments, and much more.
The Downsides of Being a W2 Employee
While there are many benefits to being a W2 employee, there are downsides as well. In fact, some truckers protested the California Assembly Bill 5, which would push truckers previously classified as 1099 to W2 employees. To explain this further, let’s look at some of the downsides of working as a W2 employee before discussing working as a 1099 worker.
As a W2 employee, you get employment benefits, job security, and all of the above advantages. But W2 employees are often paid lower hourly or mileage-based wages than 1099 workers. This is because, as independent contractors, 1099 workers can set and negotiate their own salaries.
Less control over your job is one of the differentiating factors between W2 employees and 1099 workers. As a W2 employee, your employer decides what you work on and your delivery routes. You may have little to no choice about which deliveries you work.
What is a 1099 Worker?
A 1099 worker is an independent contractor, someone who works for themselves rather than an employer. Many truckers think of it as owning their own business and deliberately choose contract work over permanent employment.
Unlike W2 employees, as a 1099 worker, you are not considered a fleet employee. This means you have more control over how you do your work and what jobs you accept. Similar to the criteria for W2 employees, your degree of control and independence in your career will determine if you are an independent contractor or not.
The Benefits of Being a 1099 Worker
As a 1099 worker, you don’t get the same benefits as employees. However, that does not mean that being classified as a 1099 worker isn’t beneficial. There are many advantages to working as an independent contractor.
Being a 1099 worker gives you more flexibility with your work. You can choose any contracts you want to work on and how much you work. Essentially, you can work whenever you want, however many hours you want and wherever you want. As a trucker, you will find the flexibility much more relaxing.
As a 1099 worker, you can get paid more than a W2 employee. You may also set your own prices and rates for each contract and delivery. Operating as a 1099 worker, you are an entrepreneur rather than an employee, which significantly increases your earning potential.
The IRS considers 1099 workers as self-employed individuals. Therefore, you can claim higher tax deductions compared to W2 employees. For example, you can claim expenses such as business mileage, meal deductions, home office expenses, repair expenses for your trucks.
The Downsides of Being a 1099 Worker
Of course, like W2 employees, 1099 workers have cons as well as pros. Let’s take a look.
No Company Benefits
As a 1099 worker, you do not get the same benefits that employees do. So, you won’t get benefits such as health insurance, paid leaves, retirement benefits, etc. You will have to pay for all of these out of your pocket.
Despite the higher earning potential you get as a 1099 worker, you still have to face financial instability. Unlike W2 employees, you won’t get a fixed salary when there is no work. You will always have to find contracts and be on the road to get paid.
You will also have to manage your own tax withholdings and payments when classified as a 1099 worker. Similarly, you will need to do your own finances and handle your business. All of this creates an additional administrative burden for you.
1099 vs W2: Which is Better for Employees?
The answer to whether 1099 or W2 is better for employees depends on several factors. Generally, truckers with families or truckers who need a steady paycheck right away choose to be W2 employees. The legal rights, steady pay, and company benefits make this a good choice if you have dependents or prefer job security.
Some truckers who are just starting out prefer to build a business for themselves, choosing to be a 1099 worker. On the other hand, some more established truckers decide to make the switch from W2 to 1099 once they feel comfortable in the industry and have a lot of industry knowledge, experience, and connections.
So the answer to the question is, what is better depends on your preferences. Do you want paid vacation or the freedom to choose whichever jobs you want? Do you want a lower but steady paycheck or a potential to earn more money but a less reliable income?
We hope this article has given you a great insight into working as both a W2 employee and a 1099 worker. Before choosing which classification you want to work under, make sure you weigh the pros and cons of both.
Career in Trucking
After you decide which type of employment is right for you, you need a great truck repair shop to keep your truck on the road. At Kelly’s Truck, we have over 50 years of experience in the trucking industry.
Need a new part? No problem, simply request a part online. With a huge variety of services, Kelly’s is here for whatever repair or maintenance you need. Plus, we offer roadside assistance in case you ever run into an unexpected breakdown.