A lot of installers and techs make the jump the same way. The company you work for says, "We're moving you to 1099." Or you decide you're done building someone else's business and go out on your own.
Either way, the day you switch from W-2 to 1099, a lot changes. Some of it's great. Some of it will bite you if you're not ready.
Key takeaways
- On a W-2, your employer withholds taxes and pays half your Social Security and Medicare. On a 1099, you pay all of it: 15.3% self-employment tax on top of income tax.
- You're responsible for quarterly estimated tax payments.
- You lose employer benefits: health insurance, retirement match, workers' comp, paid time off.
- Being "1099" isn't a choice your client makes on paper. The IRS and Colorado look at how the work is actually done.
- Price your work to cover taxes, insurance, and benefits, not just your old hourly wage.
What actually changes
Taxes
As a W-2 employee, your employer withholds income tax and pays half of your Social Security and Medicare taxes. You never really see it.
As a 1099 contractor, nobody withholds anything. You owe:
- Federal income tax
- State income tax (Colorado has a flat income tax)
- Self-employment tax of 15.3% on your net earnings (12.4% Social Security up to the 2026 wage base of $184,500, plus 2.9% Medicare)
You can deduct half of your self-employment tax, and you can deduct legitimate business expenses. But you have to pay as you go, usually through quarterly estimated taxes.
Paperwork
Clients will ask you for a Form W-9 with your name or business name and taxpayer ID. Starting with payments made in 2026, a business generally only has to send you a Form 1099-NEC if it paid you $2,000 or more in the year (up from $600). That's a reporting rule only. Every dollar you earn is still taxable, form or no form.
Benefits you'll now pay for yourself
- Health insurance. In Colorado, individual plans are available through Connect for Health Colorado, the state marketplace, or directly from insurers.
- Retirement. No more 401(k) match. Look at a SEP IRA or Solo 401(k).
- Workers' compensation. You're no longer covered by your employer's policy. Sole proprietors and LLC members generally aren't required to cover themselves in Colorado, but that means an on-the-job injury is on you. Look at disability coverage.
- Paid time off. Vacation, sick days, and holidays are now unpaid unless you build them into your rates.
- Tools, vehicle, phone, training. Your expense now. Usually deductible, but still your cash.
Are you really independent? How the IRS decides
You're not an independent contractor just because a company sends you a 1099. The IRS looks at the whole relationship. It groups the evidence into three categories:
- Behavioral control. Does the company control how you do the work, or only the result?
- Financial control. Who controls the business side? Who supplies tools and materials? Can you make or lose money on a job? Do you work for other clients?
- Type of relationship. Is there a written contract? Do you get employee-style benefits? Is the relationship ongoing, and is your work a core part of their business?
No single factor decides it. If it's unclear, either side can file IRS Form SS-8 to ask the IRS for a determination, though the IRS warns it can take six months or more.
How Colorado decides
Colorado has its own test for unemployment insurance and workers' compensation. Under Colorado law, a worker is presumed to be an employee unless the business shows the person is:
- Free from control and direction in how the work is performed, and
- Customarily engaged in an independent trade or business related to the work.
Colorado courts look at the totality of the relationship. Working for other clients, setting your own schedule and methods, using your own tools, and marketing your own business all point toward independence.
A written agreement that meets Colorado's statutory requirements can create a rebuttable presumption of independent contractor status. That means it helps, but it can be overcome by how the work really happens.
Red flags you might actually be an employee
If a company calls you a contractor but does these things, talk to someone:
- Sets your hours and requires you to work only for them
- Tells you exactly how to do the job and supervises the details
- Provides all the tools, vans, and uniforms with no business investment from you
- Pays you hourly with no chance of profit or loss
- Won't let you take other clients or use helpers
Misclassification can cost you protections like unemployment insurance and workers' comp. The Colorado Department of Labor and Employment (CDLE) and the IRS both handle misclassification issues.
Doing it right: your switch checklist
- Form your business. An LLC gives you liability protection. See why tradespeople need an LLC.
- Get an EIN free at IRS.gov so you're not handing out your Social Security number on every W-9.
- Open business bank accounts and set up a tax savings account. See business banking for tradespeople.
- Get insured. General liability at minimum. See general liability vs E&O.
- Use a written agreement with every client. See contracts every tradesperson needs.
- Set your rates to cover taxes, insurance, and benefits. See how to price your jobs.
- Pay estimated taxes each quarter.
- Work for more than one client when you can. It's good business and it supports your independent status.
The math most people get wrong
If you made $35 an hour on a W-2, $35 an hour on a 1099 is a pay cut. You're now paying the employer half of payroll taxes, your own insurance, your own retirement, your own downtime, and your own tools.
Price it out before you say yes to a rate. Our pricing guide walks through the formula.
FAQ
Is 1099 better than W-2?
Neither is better across the board. 1099 gives you control and upside. W-2 gives you stability and benefits. If you go 1099, run it like a business.
My company wants to switch me to 1099. Can they?
They can offer contract work, but the label alone doesn't decide your status. How the work is controlled does. If nothing changes except the tax form, ask questions.
Do I need an LLC to be a 1099 contractor?
No. You can be a sole proprietor. An LLC adds liability protection and looks more professional.
When are 1099-NEC forms due?
Businesses generally must send them to contractors and file with the IRS by January 31 for the prior year's payments.
Make the switch with a plan
Fresh Start Consulting helps tradespeople go independent the right way: structure, banking, insurance, contracts, and pricing. See our Business Formation services or book a free 30-minute call.
This article is for educational purposes only and is not legal or tax advice. Worker classification depends on the specific facts, and rules differ by agency and state. Talk to a licensed attorney or CPA about your situation.
Talk it through with Evan
Book a free 30-minute call. No pitch, no pressure. Or see how we help with Business Formation.
Evan Lightner is the founder of Fresh Start Consulting. He started as a 12-volt and telematics technician and built his first company from the ground up. More about Evan.
