W2, 1099 and ITIN: the terms that decide your business · Construction News

There are words that decide your business and slip by unnoticed. W2, 1099, ITIN, EIN. Many contractors mix these terms up, and the mistake does not stay in the conversation: it shows up on the tax bill, in the labor cost and in the risk of getting a fine.

It is not the name you write on paper that decides whether someone is an employee or a contractor. It is the real working relationship. The IRS looks at the facts, not the label.

SSN, ITIN and EIN: three numbers, three functions

SSN	Identifies the individual. For citizens and residents.
ITIN	For those not eligible for an SSN to file taxes and open a business. It does not authorize work.
EIN	Identifies the company to the IRS. You do not need an SSN or ITIN to get one.

W2 and 1099: the difference that hits your wallet

Both are ways to pay the people who work for you, but they work in very different ways:

Point	W2 · employee	1099 · contractor
Taxes	The company withholds and remits. It pays half of FICA, 7.65%.	The contractor pays their own tax, the 15.3% self-employment tax.
Control	You set the schedule, the tools and how the work is done.	They decide how they do it. You hire the result.
Extra cost	Workers comp, unemployment and benefits are part of the bill.	Without those direct charges, but with more classification risk.
Document	W2 form at the end of the year.	W9 at the start, 1099-NEC at the end of the year.

The relationship decides the classification, not the label

The IRS uses three fronts to know whether someone is an employee or a contractor: behavioral control, meaning who dictates how the work is done; financial control, who pays for tools and materials and how payment is arranged; and the type of relationship, whether it is permanent, has benefits and is the core of the business. Calling someone a 1099 when they work as an employee does not protect you.

The 2026 numbers

1099-NEC from $2,000. The threshold to issue the 1099-NEC rose from $600 to $2,000 per contractor per year.
Self-employment tax of 15.3%. A 1099 worker pays it on the first $184,500 of net profit, plus Medicare above that.
FICA of 7.65%. On a W2, this is the half the company pays on top of the employee's wages.

The risk of misclassifying

It is not theoretical. When misclassification is caught, the bill adds up back taxes, fines, interest and legal cost. Averages range from $10,000 to more than $100,000 per worker misclassified. And construction is among the sectors the Department of Labor watches most closely.

How to decide in practice

If you control the day to day, it is W2. Fixed schedule, your tools, your supervision: that is an employee.
If it is a one-off, independent job, it can be 1099. The person has their own company, other clients and decides how they do it.
When in doubt, document it. Signed W9, a clear contract and a record of how the relationship works. Organized paperwork protects you.
Confirm with an accountant. The rule changes by state and the cost of getting it wrong is high.

This is general guidance, not tax advice. Before deciding how to hire, confirm your situation with an accountant or lawyer. The rules and the amounts change and vary by state.

Classifying correctly, collecting the right tax and avoiding fines is an accountant's job. Nexus managerial accounting handles payroll, taxes and classification so you can focus on the job site with confidence.

Learn about Nexus →

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W2, 1099 and ITIN: the terms many people get wrong