TL;DR

Corp-to-corp (C2C) is a US contracting structure where a client company pays a contractor's incorporated entity — an LLC, S-Corp, or C-Corp — rather than the individual directly. It is the alternative to W-2 staffing agency employment or direct 1099 independent contractor payments, and it shifts tax and compliance obligations significantly.

The Structure Underneath the Label

Corp-to-corp means two business entities are transacting, not a business and an individual. The contractor has established their own company — commonly an S-Corp or LLC — and the client (or staffing agency) pays that company under a business-to-business contract. The contractor's company then pays them a salary or distribution from those funds.

The business-to-business framing matters legally. When a company pays an individual directly as an independent contractor, they must issue a 1099-NEC and may face questions about worker classification. When they pay another business entity, the arrangement is cleaner from a classification standpoint — you are buying services from a vendor, not engaging a worker. The contractor's own company handles payroll taxes, self-employment tax, and benefits for its sole employee.

For the contractor, operating through an S-Corp or LLC can have tax advantages. An S-Corp owner can take a reasonable salary subject to payroll taxes and take additional income as distributions, which avoid self-employment tax. The savings can be meaningful at higher income levels, though the IRS requires the salary component to be genuinely reasonable for the work performed.

Why Staffing Agencies Offer C2C

C2C exists partly because experienced contractors prefer it, and partly because it simplifies payroll administration for agencies. A contractor billing $120/hour through their own S-Corp is not the agency's employee. The agency does not have to run payroll for them, administer benefits, or handle workers' compensation insurance. The agency pays the contractor's company invoices — business-to-business — and the contractor handles everything else.

The trade-off is rate. C2C contractors typically command higher hourly rates than W-2 contractors because they bear more overhead: self-employment taxes, their own health insurance, business administration costs, and accountant fees. A contractor billing at $120/hour C2C might be the economic equivalent of a W-2 contractor at $90/hour, depending on their actual tax situation.

For clients reviewing staffing agreements, it is worth understanding which arrangement they are actually in. Some job postings list C2C, W-2, and 1099 as options. Each has different compliance implications for the client and different economic implications for the contractor.

Why It Matters for Recruitment

Recruiters placing contractors need to understand C2C to have an honest rate conversation. A contractor who operates C2C has a different cost structure than one on a W-2 arrangement, and comparing the two on gross rate alone is misleading.

From a compliance standpoint, C2C does not automatically solve worker classification questions. The IRS and state tax authorities still look at the substance of the relationship. If a C2C contractor works exclusively for one client, follows their direction, uses their equipment, and cannot realistically substitute anyone else, that arrangement may still be treated as employment for tax purposes in some states. The existence of a corporate entity does not override the economic reality test.

Some technology companies explicitly restrict C2C arrangements for highly controlled roles — particularly where a contractor would effectively function as a dedicated engineer working under close supervision. In those cases, W-2 is required regardless of the contractor's corporate structure preferences.

In Practice

A data engineering contractor operates through a single-member S-Corp. A financial services firm engages them through a staffing agency at $140/hour C2C for a 9-month project. The agency pays the contractor's S-Corp $140/hour against monthly invoices. The contractor pays themselves a $130,000 annual salary from the S-Corp (subject to payroll taxes) and takes additional profit as distributions. Compared to a W-2 W2 arrangement at the same gross rate, the contractor retains more after-tax — but they also fund their own healthcare, pay an accountant to maintain the S-Corp, and carry their own professional liability insurance.

Key Facts