- - I Asked ChatGPT To Explain the Difference Between W-2s and 1099s Like I'm 12 -- Here's What It Said

Laura BogartFebruary 15, 2026 at 7:07 AM

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Tax season seems to come with its own language. There are so many terms to learn: credits, deductions, adjusted gross income, modified adjusted gross income, filing status, estimated taxes. Even the forms feel like they have their own vocabulary of numbers and letters. For instance, what’s the real difference between a W-2 and a 1099?

That’s not exactly the kind of question I want to bring to my accountant (the easiest billable hour ever). Instead, I asked ChatGPT to explain it in the simplest terms possible — as if I were 12 years old. The AI gave me a straightforward answer and then went a step further with some interesting — and pertinent — context.

Setting Up the Example

The AI invited me to imagine I mow lawns to make money, since I’m a very hard-working 12-year-old.

“There are two main ways someone might pay you — and that’s kind of what W-2 and 1099 are about,” it explained.

ChatGPT used that example to drill into the differences between the two tax forms.

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An Overview of the W-2

Somewhat randomly, ChatGPT switched from mowing lawns to working in a pizza shop. OK, I like pizza — and I certainly wouldn’t have objected to working in a pizzeria at age 12 (provided state labor laws allowed it). As an employee of the pizza shop, I’d receive a W-2.

“A W-2 is a form you get when you’re an employee of a company,” the AI said.

Since I'm a formal employee, my boss tells me when to work, and the company provides everything I need — the oven, ingredients and uniform. The company also automatically withholds taxes from my paycheck.

At the end of the year, I’d receive a W-2 showing how much I earned and how much tax was already taken out.

ChatGPT referred to this as “easy mode,” since most of my taxes are handled for me.

Exploring 1099s

Just as I was getting hungry for a slice of pepperoni, ChatGPT switched things up again. Suddenly, I was back running my own lawn-mowing business. To quote “The Godfather Part III” — a movie I probably should not have watched at age 12 — “Just when I thought I was out, they pull me back in.”

As an independent contractor, I’d receive a 1099 — usually a 1099-NEC (Nonemployee Compensation, which businesses use to report payments of $600 or more to contractors). The AI broke it down succinctly:

You run your own lawn-mowing business.

You decide when to work.

You bring your own mower.

No one withholds taxes from your pay.

“At the end of the year, the people who paid you will send you a 1099 showing how much they paid you,” ChatGPT said.

But there’s a catch:

No taxes were withheld.

You have to calculate and pay them yourself — and you may need to make quarterly estimated tax payments throughout the year.

Oof. Quite the trade-off.

Simple Summation

To quickly summarize when my pre-adolescent self might receive each form, ChatGPT offered a few examples:

Work at McDonald’s: W-2

Do freelance graphic design: 1099

Drive for Uber: 1099

Work at a school: W-2

That does add clarity — though as a 12-year-old, I’m definitely not driving for Uber.

Which One Pays More?

Before wrapping up, ChatGPT asked whether I wanted to know which one “pays more.” Of course I did. Here’s how it explained it:

1099 jobs often pay more per hour.

W-2 jobs often provide more overall benefits.

“When you're a W-2 employee, your paycheck might look smaller,” ChatGPT said. “But your job is secretly paying for a bunch of stuff for you.”

That “stuff” can include:

Health insurance (sometimes)

Part of your Social Security taxes

Paid vacation days

Paid sick days

Unemployment protection

Retirement matching

Then the AI pivoted back to 1099 work, where I’d likely earn more per hour. It sounds better — but it comes with added responsibilities. As a 1099 contractor, I’d be responsible for:

Paying all my own taxes (including the full self-employment tax, which covers both the employer and employee share of Social Security and Medicare)

Buying my own health insurance

No paid vacation

No paid sick days

No unemployment benefits

Saving for retirement myself

“So the extra money helps cover all that stuff,” it explained.

Which one pays more? It depends — on how well I manage money, whether I value benefits or flexibility, and how large the pay gap is.

“Some people make way more with 1099 work (like consultants or freelancers),” ChatGPT said. “Some people prefer the safety and benefits of W-2 jobs.”

The Bottom Line

The difference between a W-2 and a 1099 is fairly straightforward — even a youngster can grasp it. You’ll receive a W-2 if you’re a regular employee and a 1099 if you’re an independent contractor — but the bigger distinction is who handles the taxes and who shoulders the responsibility for benefits.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.

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Source: “AOL Money”