W-2 vs 1099 in the Trucking Industry

In trucking, this gets tricky. The IRS and Department of Labor are cracking down on misclassification, especially in industries like transportation and logistics.

You must classify your drivers correctly — otherwise, you risk fines, back taxes, and even lawsuits.

Ask yourself:

• Do I control the driver’s route, schedule, and load assignments?

• Do I provide the truck, insurance, or dispatching?

• Can the driver refuse a load or work for other carriers?

If you control the working relationship, the IRS likely considers them an employee — not a contractor.

When Should You Pay Drivers as W-2 Employees?

Use W-2 if:

• You own the truck and the driver is using it

• You assign specific routes or schedules

• You dispatch the driver and manage their work

• You require them to wear your company branding or follow your company policies

Pros of W-2:

• Easier to comply with IRS and labor laws

• Safer for scaling your fleet

• Drivers may prefer the stability and tax withholding

Cons of W-2:

• Higher employer tax burden

• More paperwork (payroll setup, tax filings)

• Requires workers’ comp and unemployment insurance

When Should You Use 1099 Independent Contractors?

Use 1099 if:

• The driver owns their truck and operates independently

• You offer them loads, but they can accept or decline

• They work with multiple companies

• They control their own schedule and expenses

Pros of 1099:

• Lower cost and less paperwork for the company

• Flexibility to scale up or down

• Contractors handle their own taxes and benefits

Cons of 1099:

• Risk of misclassification penalties if used incorrectly

• Less control over driver performance

• No loyalty or exclusivity (they can work for competitors)

How Should You Pay Yourself as the Owner?

It depends on your business structure:

➤ Sole Proprietor or Single-Member LLC

• You don’t pay yourself a “salary.”

• Instead, you take owner’s draws from your business profits.

• You’ll pay self-employment tax on net income.

➤ S Corporation (or LLC taxed as S-Corp)

• You must pay yourself a “reasonable salary” through payroll (W-2).

• You can also take distributions (dividends) that aren’t subject to self-employment tax.

• This structure can save you on taxes — but only if set up correctly.

💡 Talk to a CPA or payroll provider to make sure you’re paying yourself legally and efficiently.

IRS Misclassification Penalties (Don’t Risk It)

If the IRS determines you misclassified an employee as a contractor, you could owe:

• Back wages and overtime

• Back taxes (income, Social Security, Medicare)

• Penalties up to $25,000 per misclassified driver

• Fines from the Department of Labor or state agencies

Bottom line: It’s better to be safe than sorry. If you’re unsure, lean toward W-2 or consult a tax advisor who understands transportation law.

How to Set Up Payroll (the Right Way)

If you choose W-2:

• Register for an EIN and state tax accounts

• Use payroll software like Gusto, ADP, or QuickBooks Payroll

• Withhold and remit taxes

• File quarterly and annual payroll tax forms

• Issue W-2 forms to employees at year-end

If you use 1099 contractors:

• Collect a W-9 form before payment

• Track all payments

• File Form 1099-NEC in January for each contractor paid over $600

Final Thoughts

Choosing between W-2 and 1099 isn’t just a tax decision — it’s a business strategy. Done right, it can save you money, reduce risk, and build a stronger company. Done wrong, it can trigger costly audits and penalties.

At Roads to Profits, we help new carriers, dispatchers, and fleet owners set up their businesses the right way from day one — with digital tools, SOPs, and resources designed to help you operate legally and profitably.