US tax terms commonly used in the IT recruiting industry. These terms are important for US IT recruiters to understand as they pertain specifically to employment and payment structures.
Firstly, C2C stands for "Corp-to-Corp" and refers to an independent contractor or consultant who is hired by a company on a contract basis. This means that the contractor will set up their own corporation and invoice the hiring company for their services. As such, the contractor is responsible for paying their own taxes including federal income tax, social security tax, Medicare tax, and any applicable state taxes.
W2 refers to an employee-employer relationship where the individual is
considered an employee of the hiring company. In this case, the employer is
responsible for withholding taxes from the employee's paycheck including
federal income tax, social security tax, Medicare tax, and state taxes.
Lastly, 1099 refers to another type of independent contractor arrangement where an individual provides services on a project-by-project basis rather than being employed by one specific company. In this scenario, similar to C2C arrangements, individuals are responsible for paying their own taxes.
In summary:
- C2C: Independent contractors who set up their own corporation and invoice companies directly.
- W2: Employees who have taxes withheld from their paychecks by employers.
- 1099: Independent contractors who work on a project-by-project basis and are responsible for paying all applicable taxes themselves.