Guides / W-2 or 1099
W-2 or 1099: what really changes
A 1099 rate has to be higher than a W-2 rate just to break even. You pay both halves of Social Security and Medicare, lose FLSA overtime and unemployment coverage, and buy your own insurance.
Updated November 10, 2026.
General information about federal rules, not legal or tax advice. State law can treat the same job differently. Confirm your situation with the agency or a qualified professional.
The job decides, not the paperwork
You are not a contractor because the offer says 1099, because you signed an "independent contractor agreement", or because the shifts are PRN. The IRS looks at the whole relationship: behavioral control (who directs how the work is done), financial control (who controls the business side: how you are paid, who supplies equipment, whether you can make or lose money), and the relationship itself (benefits, permanence, whether the work is the company's core business). In the IRS's own words, the substance of the relationship, not the label, governs.
The Department of Labor uses a broader "economic reality" test for wage-and-hour law: are you economically dependent on the company, or in business for yourself? DOL says a 1099 does not by itself make someone a contractor, and a worker cannot waive employee status.
For most clinicians the facts point one way. If the facility sets your shifts, you follow its protocols and medical director, use its monitors and drugs, and answer to its charge nurse or supervisor, that looks like employment. A 1099 fits better when you run your own business: you set your own rates, serve several clients, carry your own liability cover and can lose money on a job.
Where the federal rule stands (November 2026)
The 2024 DOL rule (29 CFR part 795) is still in the Code of Federal Regulations and still applies in private lawsuits, but since May 2025 the Wage and Hour Division has investigated contractor cases under its older guidance (the July 2008 version of Fact Sheet #13, attached to the bulletin, and a 2019 opinion letter) instead (Field Assistance Bulletin 2025-1). In February 2026 DOL proposed replacing it with a test built on two core factors, control over the work and the chance of profit or loss. That proposal is not final; comments closed April 28, 2026. State unemployment and workers' compensation laws can use their own tests. Wisconsin's unemployment law, for example, presumes a worker is an employee unless the employer proves otherwise.
What changes for you
| W-2 employee | 1099 contractor | |
|---|---|---|
| Who withholds tax | The employer withholds income tax, Social Security and Medicare from each check. | Nobody. You set it aside and usually pay quarterly with Form 1040-ES. |
| Social Security and Medicare | 6.2% + 1.45% from your pay; the employer pays the same again. | 15.3% self-employment tax (12.4% + 2.9%). You can deduct the employer-equivalent half. |
| Overtime | Covered hourly employees get at least 1.5× the regular rate after 40 hours in a workweek (or the hospital 8-and-80 system). | No FLSA overtime. You get whatever rate the contract says. |
| Unemployment | Wages count toward a state unemployment claim. | 1099 income is not counted toward a regular claim. You can still file; the state decides. |
| Workers’ comp | Usually covered by the employer’s workers’ comp, but rules vary by state: most Texas private employers can choose not to carry it, and federal jobs (VA, IHS) use the federal FECA program instead. Ask HR whether you are covered. | Generally not covered by the client’s policy. Check with your state workers’ comp board, and price your own disability cover. |
| Health insurance | Employer plan if offered; premiums usually come out pre-tax. | Your own plan, often through the Marketplace. Premiums may be deductible as self-employed health insurance. |
| Stipends and expenses | Not taxed only under an accountable plan (IRS Pub. 15) and with a tax home away from the job (IRS Pub. 463). For overtime, a per diem stays out of the regular rate only if it reasonably matches real costs (29 CFR 778.217). | All of it is income. Qualifying business expenses go on Schedule C. |
The tax side in detail, with estimated payments and the QBI deduction, is on W-2 and 1099 taxes.
What a 1099 rate has to beat
Start from the W-2 rate and add back what the employer was paying or covering:
- The employer half of Social Security and Medicare: about 7.65% (6.2% + 1.45%), applied to 92.35% of your net earnings, with the 6.2% part only on the first $184,500 for 2026 (IRS Topic 554), less the income-tax saving from deducting half of self-employment tax.
- Overtime you no longer get: on a 48-hour week at $40, the 8 overtime hours are worth $160 more as a W-2 employee ($60 vs $40 an hour).
- Insurance and retirement: health premiums, any employer retirement match, malpractice and disability cover you now buy yourself.
- Unpaid gaps: no unemployment claim between contracts on 1099 income.
Put both offers in the offer calculator with "Paid as" set to W-2 and 1099. It adds self-employment tax and drops withholding on the 1099 side, so the gap shows up in dollars.
Overtime rules that matter to clinicians
- 40 hours in a workweek. Covered hourly employees get at least 1.5× their regular rate after 40 hours, and hours cannot be averaged across two weeks (DOL Fact Sheet 23).
- Hospitals: 8 and 80. A hospital or residential care facility may instead use a 14-day period and pay overtime after 8 hours in a day and 80 in the 14 days, but only with an agreement made before the work is done, and not both systems for one employee (Fact Sheet 54).
- The regular rate includes differentials. Shift differentials and nondiscretionary bonuses go into the rate overtime is figured on. DOL names leaving them out as a common health-care error. A per diem that reasonably matches real travel costs can stay out; an inflated one counts as pay.
- 24-hour EMS shifts. On duty for 24 hours or more, you and the employer may agree to exclude up to 8 hours of scheduled sleep, but calls that interrupt it count as work, and if you get under 5 hours of sleep the whole night counts (Fact Sheet 22). Under 24 hours on duty, sleep time is work time.
If you think you are paid on the wrong form
- Keep your schedules, the protocols and policies you work under, texts from supervisors and the pay records.
- For tax: you can ask the IRS to decide with Form SS-8, and report only your share of Social Security and Medicare on Form 8919 where its instructions allow.
- For overtime and minimum wage: contact the DOL Wage and Hour Division or your state labor department. Contractor status and your other rights at work are on the rights hub: travel and contract work.
Sources for this page
- IRS, Independent contractor (self-employed) or employee? Checked November 10, 2026.
- IRS, Employee (common-law employee) Checked November 10, 2026.
- IRS Topic 762, Independent contractor vs. employee Checked November 10, 2026.
- IRS Form SS-8 Checked November 10, 2026.
- IRS Form 8919 Checked November 10, 2026.
- IRS Topic 751, Social Security and Medicare withholding rates Checked November 10, 2026.
- IRS, Self-employment tax 2026 wage base $184,500. Checked November 10, 2026.
- IRS Instructions for Form 7206, self-employed health insurance deduction Checked November 10, 2026.
- DOL Fact Sheet 13, Employment relationship under the FLSA (March 2024 version, written for the 2024 rule) Checked November 10, 2026.
- DOL Field Assistance Bulletin 2025-1 May 1, 2025 enforcement position; the July 2008 Fact Sheet #13 is attached. Checked November 10, 2026.
- DOL, 2026 independent contractor rulemaking Proposed rule; comments closed April 28, 2026. Checked November 10, 2026.
- DOL FAQ on the 2024 independent contractor rule Checked November 10, 2026.
- DOL Fact Sheet 23, Overtime pay Checked November 10, 2026.
- DOL Fact Sheet 54, Health care industry and overtime Checked November 10, 2026.
- DOL Fact Sheet 22, Hours worked (24-hour duty and sleep time) Checked November 10, 2026.
- DOL, Unemployment insurance Checked November 10, 2026.
- unemployment.gov (DOL), independent contractors and self-employed Checked November 10, 2026.
- DOL, Workers’ compensation Checked November 10, 2026.
- Texas Department of Insurance, Workers’ compensation for employers Private employers can choose to carry coverage; it is not required in most cases. Checked November 10, 2026.
- DOL OWCP, Federal Employees’ Compensation (FECA) Checked November 10, 2026.
- Wisconsin DWD, worker misclassification and unemployment insurance Checked November 10, 2026.
- IRS Topic 554, Self-employment tax Checked November 10, 2026.
- IRS Publication 15 (2026), accountable plans Checked November 10, 2026.
- IRS Publication 463, tax home 2025 edition. Checked November 10, 2026.
- 29 CFR 778.217, expense reimbursements and the regular rate Checked November 10, 2026.
- DOL Fact Sheet 56A, Regular rate Checked November 10, 2026.
- HealthCare.gov, coverage for the self-employed Checked November 10, 2026.