C2C (corp-to-corp) and 1099 both describe non-employee engagements. Neither is a W-2. Still, they're not the same thing, and for the organizations doing the hiring, the difference has operational and compliance implications.
Fortunately, it’s not too complicated.
Below, we’ll break down everything you need to know about C2C and 1099 engagements, how they work, the compliance implications, and when each is the right fit.
Key Takeaways
- 1099 refers to how an individual independent contractor is paid and reported. C2C (corp-to-corp) refers to a business-to-business arrangement where you're contracting with the worker's own business entity (not the worker as an individual).
- Both avoid employment taxes and benefits from the hiring company's side. The compliance implications differ depending on the structure.
- C2C arrangements can support a stronger case for independent contractor status but only if the business entity is real and independently operating.
- Both arrangements require the same foundational compliance steps: classification, a signed agreement, proper tax documentation, and payment through accounts payable.
What Is a 1099 Contractor?
A 1099 contractor is an individual who performs work for your organization as a self-employed person. The 1099 refers to the 1099-NEC tax form they receive at year-end for any payments of $600 or more. No payroll tax withholding, benefits, or W-2.
The contractor operates as a sole proprietor or single-member LLC and pays their own self-employment taxes. Your organization collects a W-9 before the first payment, issues the 1099-NEC at year-end, and pays the contractor directly through AP.
From a classification standpoint, a 1099 engagement is evaluated using the applicable legal tests (the IRS's three-category common law test, state ABC tests where applicable, and any local equivalents) based on the actual working relationship.
Though it's worth noting that California and Massachusetts apply a stricter standard than most: they require the work itself to be outside the company's usual course of business. Other ABC-test states offer an easier path, including satisfying that prong simply by working offsite.
Signing a 1099 agreement doesn't make someone an independent contractor. The nature of the engagement does.
What Is Corp-to-Corp (C2C)?
Corp-to-corp is a payment and engagement structure where your organization contracts with the worker's business entity (their LLC, S-corp, or C-corp) rather than with the worker as an individual. The business entity invoices you. You pay the business entity. The worker pays themselves from their own company.
On your end, a C2C engagement is a business-to-business transaction. You're a client of their company. You don't issue a 1099-NEC to the individual. You pay the entity.
Whether you issue a 1099 to the entity depends on the entity type: C-corps and S-corps generally don't require a 1099-NEC from clients, though LLCs taxed as sole proprietorships or partnerships typically do.
From a compliance standpoint, a legitimately structured C2C arrangement can support a stronger case for independent contractor status. Prong C of the ABC test (where it applies) requires the worker to be engaged in an independently established trade or business. Having a real business entity with its own clients, its own infrastructure, and a market presence beyond your single engagement helps satisfy that.
Prong B — which requires the work to be outside the company's usual course of business in California and Massachusetts — is a separate hurdle that the entity structure doesn't help with at all. A legitimate S-corp with multiple clients still fails Prong B if it's doing work that's core to your business. Entity legitimacy gets you to Prong C. It doesn't solve Prong B.
Note: A single-member LLC formed specifically for this engagement with no other clients doesn't.
C2C vs. 1099 vs. W2: The Must-Know Differences
While the main focus here is between C2C and 1099, you’ll also see a bit of confusion around W2 and where it fits in the picture. These three terms appear together constantly in contracting discussions. Here’s everything you need to know:
Now, passing the IRS's classification test doesn't resolve everything. The Fair Labor Standards Act (FLSA) applies its own economic reality test to determine who counts as an employee for wage and hour purposes, and that test runs independently of IRS classification. A worker can be correctly classified as a 1099 contractor under IRS rules and still be found to be an employee under the FLSA's economic reality analysis, which looks at factors like:
- Worker's opportunity for profit or loss
- Investment in their own equipment
- Degree of economic dependence on the hiring company
A C2C structure doesn't change that exposure either. The business entity wrapper is irrelevant to the FLSA's analysis, which looks through to the substance of the working relationship regardless of how the worker is paid.
C2C doesn't automatically mean better compliance or lower risk. It depends entirely on whether the business entity is real.
A worker who formed an LLC last week, has no other clients, works exclusively for your organization, operates under your daily direction, and uses your equipment…well, that's not a business-to-business arrangement. It's an employment relationship with extra paperwork. The classification tests look past the entity structure at the substance of the working relationship.
A worker with an established S-corp, multiple clients, their own infrastructure, and a market presence that would continue if your engagement ended — that's a legitimate C2C arrangement. The entity structure supports the case for independent contractor status because the substance backs it up.
The entity is evidence. It's not a shield.
What This Means Operationally for Hiring Companies
Whether you're engaging a 1099 contractor or a C2C contractor, the compliance fundamentals are the same.
- Classification comes first. Evaluate the engagement against the applicable legal tests before work starts. Document the reasoning. If the engagement structure doesn't hold up, no entity structure fixes that.
- Get the right paperwork. For a 1099 individual, collect a W-9 before the first payment. For a C2C engagement, collect the entity's W-9 (or confirm it's a corporation type exempt from 1099 reporting). Either way, have it on file before money moves.
- Use a business services agreement for C2C. A standard independent contractor agreement is fine for 1099 individuals. C2C engagements should be documented as contracts between two business entities. The framing matters for the paper trail.
- Pay through AP. Both 1099 and C2C payments go through accounts payable. Invoice, approval, payment. Neither group belongs in a payroll run.
How Worksuite Handles Both
Worksuite manages both 1099 individual contractors and C2C business entity engagements through the same platform.
Classification is evaluated against the applicable federal and local tests for each engagement. Each engagement goes through Worksuite's country-specific classification engine, which evaluates the working relationship against applicable tests and returns a recommendation — Qualified IC or Uncovered Worker — across all 50 U.S. states and 190+ countries. The final classification decision rests with the customer.
Onboarding collects the right tax documentation automatically: W-9s for individual contractors, entity documentation for C2C arrangements. Contracts are generated from legal-approved templates. Payments process in 190+ countries across 120+ currencies, and 1099 reporting is handled automatically at year-end, with entity type factored into filing requirements.
Worksuite handles all of this automatically (classification questionnaire, tax document collection, agreement generation, and payment), compressing what typically takes days of back-and-forth into hours or less.
Whether the engagement is 1099 or C2C, the infrastructure is the same. So is the compliance standard.
Book a live demo to see how Worksuite handles your contractor program.
