The fact is your parents have $33k more in income on the forms. Everyone reports pre-tax income, so that’s not an argument to ignore that income.
I don’t see how getting a W2 means that they get the same amount of income as when they had a 1099. Usually it’s the other way, that someone gets a 1099 and then can take a lot of deductions for being a contractor. An employer pays an employee less than a contractor because the employer has added expenses of employment taxes, and maybe other benefits like health care or vacation pay,