3 Things You Must Know About Payroll Taxes

By Sarah Knight, ShiftMed Content Manager//Nurse Payroll, Nurse How-Tos, W-2 Employment
A nurse sitting at a desk with her laptop reviewing her payroll taxes.

When you claim shifts with ShiftMed, you're part of a team working as a W-2 employee—not a 1099 lone wolf. Unsure of the differences between W-2 employees and 1099 contractors? Don't worry; we'll break it down in the simplest, most entertaining way possible and discuss how these employment classifications influence your payroll taxes.

W-2 Employee vs. 1099 Contractor

We're about to explain the difference between being a W-2 employee and a 1099 contractor in a way that's as fun as a rollercoaster ride at the amusement park!

Imagine you're at an Employment Carnival with VIP ticket holders (W-2 company employees) and free spirit ticket holders (self-employed 1099 contractors).

VIP ticket holders get unlimited rides on the Ferris wheel (more job security), can enjoy popcorn and cotton candy (healthcare benefits), and stay at the carnival as long as they want (more job stability).

Free spirit ticket holders can only ride the Ferris wheel once (less job security), don't have access to popcorn and cotton candy (no benefits), and can only stay at the carnival for a limited time (less job stability).

As a ShiftMed healthcare professional, you can access a comprehensive suite of perks, from quality, affordable health benefits to Instant Pay to discounted career advancement opportunities.

A woman smiling and holding a funnel cake at a carnival. Next to her is text showcasing the differences between a W-2 employee and a 1099 contractor.

3 Types of Payroll Taxes

One thing W-2 employees and 1099 contractors have in common is that they must pay taxes to the government based on their income—only how and when they pay is different. But before we get into the how and when let's discuss the different types of payroll taxes.

People often use the terms income tax and payroll tax interchangeably. Technically speaking, they're two different taxes under the employment taxes umbrella and categorized by what they fund. Income tax goes towards public services, such as education and transportation, and payroll taxes go towards Social Security and Medicare.

But, for the sake of this post, we'll refer to everything as payroll taxes.

Federal Income Tax

Everyone who collects a paycheck must pay federal income tax. Levied by the Internal Revenue Service, federal income tax rates are progressive; as your taxable income increases, so does your tax rate.

State and Local Income Tax

Not everyone has to pay state and local income tax. It all just depends on the state and locality. As of 2022, folks in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don't have to pay state income tax. If you have to pay state and local taxes, the rates vary based on where you live.

Social Security and Medicare Tax

Everyone who works in this country must contribute a flat percentage of their income to help fund Social Security and Medicare. Social Security and Medicare tax is collectively known as FICA (Federal Insurance Contributions Act) for W-2 employees and self-employment tax for 1099 contractors.

A Ferris wheel at a carnival with text next to it listing the three types of payroll taxes: federal income tax, state and local income tax, and Social Security and Medicare (FICA) tax.

3 Ways Employment Classification Influences Payroll Taxes

As mentioned earlier, it doesn't matter if you're a W-2 employee or a 1099 contractor; you must pay payroll taxes. It's how you manage and file your taxes that differ. Let's dig in.

1. Pay Taxes Every Paycheck or Every Quarter

If you're a W-2 employee, your employer withholds the taxes you must pay to the government every paycheck and submits your payment to the IRS on your behalf and, in some cases, your state government. That's right, you don't have any tax calculations or paperwork to worry about. And just so you know, your employer doesn't keep any of your tax payments, nor do they determine the amount you must pay—that's all the government's doing.

If you're a 1099 contractor, you're the boss of all your taxes, and it's a lot of administrative work. You must complete several forms and calculate and file your estimated taxes four times a year. If your estimated tax payments are incorrect or submitted late, you might have to pay a penalty and have a much larger tax bill at the end of the year.

2. Pay More Taxes or Pay Less Taxes

When you're a 1099 contractor, it may feel like you're making more money, but that's because whoever is paying you isn't withholding any payroll taxes from your check. And what most 1099 contractors don't realize is that they pay more into Social Security and Medicare than W-2 employees.

1099 contractors pay 15.3% towards Social Security and Medicare, whereas W-2 employees pay 7.65%, and their companies pay 7.65% for a combined 15.3%.

3. More Stability or Less Stability

Labor laws protect W-2 employees regarding workers' compensation insurance, unemployment insurance, and unpaid overtime. 1099 contractors don't have this type of protection. They are fully responsible for themselves should they suddenly become unemployed or hurt while on the job.

1099 contractors are under more scrutiny regarding financial lending than W-2 employees. Whether it involves a mortgage, car loan, or credit card, it's often easier for W-2 employees to secure a loan because they have pay stubs to show proof of income. 1099 contractors can provide their client invoices, but lenders don't always view them as proof of a stable income.


Now that you've seen how we've made understanding the differences between W-2 employees and 1099 contractors as easy as a breeze, you can rest assured knowing that your employment journey with ShiftMed is efficient and packed with camaraderie.

As a part of our nursing team, you get to enjoy the perks of stability, benefits, and peace of mind that comes with being a W-2 employee. No need to navigate the tax wilderness alone or worry about withholding—ShiftMed's got your back.

If you're not already working with ShiftMed, what are you waiting for? Download our nursing jobs app today to start working when, where, and how often you want.

Disclaimer: ShiftMed does not provide legal, accounting, or tax advice. This content is for informational purposes only and is not intended to provide legal, accounting, or tax advice. Please refer to a professional advisor prior to acting on the information set forth herein.

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