W2 vs. 1099 for people working multiple jobs (overemployed)

The W2 form is a tax form in the USA that companies issue to their full time employees. Full time meaning on average 40 hours per week but there are also exempt and non-exempt employees. Exempt basically means that a company can ask to work 50, 60, 80 or more hours per week without having to pay for overtime (extra pay). There’s a certain high level of income to qualify for exempt. Most professional (“office”) jobs are exempt while service jobs like a barista are non-exempt.

Contrary to W2, 1099 is mostly for short-term contract work where contractors (people who perform the work) are not permanent employees. Typically, contractors don’t have medical insurance, retirement benefits nor vacation/holiday days unlike their W2 counterparts. To offset this lack of benefits and additional tax, the 1099 hourly rate needs to be at least $15/h higher than W2 (you can take an annual W2 salary and divide it by 2000 hours in a year). 

So far the borderline is clear. 1099 has no benefits and is short term while W2 is long-term and with benefits. The line gets blurrier when a person works the same 40h/wk on 1099 and they have that increase of $15/h. This is getting closer to being a W2 worker. In fact, most of the software engineering consultancies work on 1099 but submit their timesheets close to 40h/wk. If this 1099 person gets another 1099 jobs at 40h/wk, then this person is overemployed! Needless to say that in knowledge work, hours don’t mean results so an expert worker can deliver on two job expectations at the same time. 

The most productive and energetic workers can have a mix of W2s and 1099 from different companies in a given fiscal year. IRS loves this taxpayers because they bring more money to the government! Tax accountants also like this clients because they can charge more, especially if there’s an LLC or a business for the 1099 income.

Some people on forums think that having 1099 instead of W2 is somewhat safer for being overemployed because as 1099 they are independent contractors. In reality, it depends on your 1099 contract and your relationship with this employer. And most 1099 employers would not be happy with a person having another full time commitment. It’s exactly the same situation as with W2 employers.

The bottom line is that while most overemployed have multiple W2s at the end of the fiscal year, it’s possible to work hourly on 1099s as an independent contractor and be overemployed too.