What is a W-2 contractor?

In the work environment, a person can be an employee or a contractor. An employee is a person who is supervised within a business and is subject to its work rules; the employer deducts taxes from the employee's pay, matches them in some cases, and remits them to the government. Payments made to an employee are reported on the Form W-2 following the end of each calendar year. An example of an employee is an accounting clerk.

A contractor works independently, and is not subject to the work rules of an employer. This person pays his or her own payroll taxes. Payments made to a contractor are reported on the Form 1099 following the end of each calendar year. An example of a contractor is an independent consultant.

Given these two definitions, it appears impossible to be a W-2 contractor, since the Form W-2 applies to employees, not contractors. However, if a person were employed by a temporary work agency, the agency would be in the role of employer, and so would deduct taxes and issue a Form W-2 to the person. Meanwhile, the person would be working for the business that is paying the temporary work agency for his or her services. Thus, the person can be considered a contractor from the perspective of the business paying the temporary work agency, and an employee from the perspective of the work agency. Thus, the term W-2 contractor is a amalgamation of two different concepts.