What is a 1099 Worker?

In an effort to further clarify the various forms of contracting, here are some compensation definitions that differentiate the status(es) of the contractor. Contractors and consultants share the same set of options for employment sub-categorization, and the tasks that they perform for clients do not differ between forms of employment.

W-2
Workers are paid hourly on a regular basis and work with a staffing firm or business service that handles the payroll function. The firm or service takes care of all tax withholdings - State, Federal, and Social Security. As well as paying the employer's portion of Social Security and Medicare W-2, contractors/consultants are also covered under the firm's/services workman's compensation and general liability insurance.

Salaried
Workers are full-time employees of a consulting firm and receive a regular salary and full benefits package.

Incorporation
Workers have established themselves or their business as a corporation (type C or S) and receive an employment identification number. They are paid as an employee of that corporation. Incorporation requires general liability insurance, workman's compensation, and in some instances, errors and omissions coverage (depending on the client or staffing firm requirements).

Sole proprietor
Worker is self-employed but has not incorporated their business or set up a limited liability company (LLC). Their Social Security number is their tax ID. This can also be referred to as a 1099 contractor.

Source: "Contract Professional"