Most Americans are W-2 employees; they work for an employer that reports their income to them on a form W-2. There are many implications to being a W-2 employee.

Non-pension workers who are W-2 employees are forced to pay into Social Security. Employees pay 6.2 percent of their income into Social Security, which is matched by the employer. A total of 12.4 percent of the employee’s income is deposited into the Social Security system.

The same is true of Medicare tax. Employees pay 1.45 percent of their income, which is matched by their employers for a total of 2.9 percent of income paid into the Medicare system.

Regular W-2 employees are also at the mercy of their employer’s retirement plan choices. Employees rarely get to choose for themselves which retirement plan is best for them. That includes when an employer can’t afford or chooses not to have a retirement plan at all.

Some employers prefer to hire 1099 contractors than W-2 employees because it reduces expenses. They are not on the hook for taxes, benefits or liabilities, among others.

Employers don’t always get to choose between W-2 and 1099 status. When an employer can control when, how, and where an employee works, they are usually obligated to have a W-2 relationship with their employees. There have been many court battles between employers and employees over this status.

If you are a 1099 contractor yet are still told when, how, and where to work, you might have a case to be switched to a W-2 employee.

Most people hate the idea of being a 1099 contractor. They are forced to pay both halves of Social Security and Medicare tax. They also fear missing out on numerous other employee benefits.

Despite the drawbacks of 1099 contractor status, there are some situations in which workers would fare much better than as a W-2 employee. Some run away from 1099 status when they should run toward it.

Contractors can deduct all kinds of expenses that regular employees can’t. This was true before 2018 when employees could deduct some non-reimbursed employee expenses. Tax changes now disallow unreimbursed employee expenses.

Contractors may also have more choices for retirement planning. Regular employees are at their employer’s mercy, 1099 contractors aren’t. SEP and SIMPLE IRAs along with individual 401(k)s are a few of the expanded options.

Recent tax changes also allow many self-employed and business owners to claim a 20 percent deduction against income. This deduction alone should cause many employees to examine the 1099 status.

The implications of switching from a W-2 employee to a 1099 contractor are far too complicated and nuanced to be chosen without planning and research. Don’t let the complexity of the situation scare you away from questioning it.

If after some research you think you may do better as a contractor, then don’t be afraid to bring the subject up with your employer. Many employers would gladly make the switch.

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Tom and John Mills are registered investment advisers and certified financial planners. Reach them at 254-0155. MillsWealth.com. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Strategic Wealth Advisors Group (SWAG), a registered investment adviser.