1099 vs W-2 Calculator
The salary, the benefits and the rate that matches them
Your result will appear here
Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- General mathematical model
- Scope and limitations
- Planning indicator only. It does not assess every part of a household's finances or replace individualized professional advice.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the W-2 salary the contract is competing with. Everything on the page is solved against it — the answer is the contract revenue that leaves you exactly as well off.
- 02
Enter the hours you expect to ACTUALLY bill in a year. 1,800 is a realistic full-time figure once holidays, sick days, admin, invoicing, sales and the weeks between contracts are taken out; entering 2,080 quietly understates the rate you need.
- 03
Price what the employer pays on top of the salary: the 401(k) match as a percentage of base, what the employer contributes toward your health coverage each month, the paid days off a year with holidays included, and any other employer-paid benefits — life and disability cover, an HSA contribution, training.
- 04
Enter the business costs you would carry as a contractor — liability cover, software, accounting, equipment — and your federal bracket.
- 05
The qualified business income deduction is prefilled at 20%, with the self-employment mechanics (92.35%, 12.4%, 2.9%, the $184,500 wage base) in Advanced options. Read the required hourly rate, the multiple against the salary's own hourly rate, and the side-by-side table that ends on the same figure in both columns.
Formula
The employee side. Social Security = 6.2% of salary up to the $184,500 wage base; Medicare = 1.45% of all of it; income tax = salary × your bracket; take-home = salary − payroll tax − income tax. Employer benefits = the match (base × the match percentage) + the employer premium × 12 + other employer-paid benefits. The target the contract must hit is take-home + those employer benefits, because a contractor has to buy them back. The contractor side, at any given gross: profit = gross − business expenses. Net earnings = profit × 92.35%. Self-employment tax = 12.4% of net earnings up to the wage base + 2.9% of all of them. Half of that tax is deducted above the line. QBI deduction = 20% × (profit − the half-SE deduction). Taxable income = profit − the half-SE deduction − the QBI deduction. Income tax = taxable × your bracket. Net = gross − expenses − self-employment tax − income tax. Because the wage base and the QBI deduction both make that net a piecewise function of gross, there is no closed form; the page bisects the gross until the contractor's net equals the target. Required hourly rate = that gross ÷ your billable hours. The salary's own hourly rate = salary ÷ ((260 working days − paid days off) × 8).
Example
A $110,000 salary, 1,800 billable hours, a 4% match, $550 a month of employer-paid coverage, 25 paid days off, $1,500 of other benefits, $4,000 of business costs and a 22% bracket. The W-2 side: $6,820 of Social Security plus $1,595 of Medicare is $8,415 of payroll tax, income tax is $24,200, so take-home is $77,385. The employer adds $4,400 of match, $6,600 of health coverage and $1,500 of other benefits — $12,500 — which makes the job worth $122,500 and sets the target at $89,885. The contractor side lands on $133,305 of revenue, 21% above the salary. Profit after $4,000 of expenses is $129,305; net earnings at 92.35% are $119,413; self-employment tax at 15.3% is $18,270, of which $9,135 is deducted above the line. The QBI deduction is 20% of the $120,170 that remains — $24,034 — leaving $96,136 taxed at 22%, or $21,150. Net: $133,305 − $4,000 − $18,270 − $21,150 = $89,885. The same pocket, both ways, which is the point. As a rate that is $74.06 an hour against the salary's own $58.51 over 1,880 hours actually worked — a multiple of 1.27. Bill 1,700 hours instead of 1,800 and the rate you need rises by about $4.36 an hour; add the self-employed health insurance deduction the page omits and it falls by about $0.81.
Definitions
- Self-employment tax
- Social Security at 12.4% and Medicare at 2.9% — both halves — charged on 92.35% of net profit. The Social Security half stops at the $184,500 wage base; the Medicare half never stops.
- Net earnings from self-employment
- Profit multiplied by 92.35%, the figure self-employment tax is actually charged on. The 7.65% haircut approximates the employer-half deduction an employee never sees.
- QBI deduction
- The qualified business income deduction: 20% of net profit after the half-SE deduction, available to a contractor and never to a salary. Phased down for service businesses above an income threshold and limited there by W-2 wages paid and property basis.
- Above-the-line deduction
- An adjustment to income you take whether or not you itemize. Half of self-employment tax is one, which is why a contractor's taxable income is lower than their profit.
- Billable hours
- Hours a client actually pays for, as against hours worked. The gap — admin, invoicing, sales, and the weeks between contracts — is the most common reason a contractor who did the tax arithmetic correctly still ends the year behind.
- Estimated tax payments
- The four quarterly payments that replace withholding for someone with no employer. Missing or underpaying them carries an underpayment penalty regardless of what you settle in April.
Good to know
Both halves of payroll tax, and the two things that soften it
The headline of the whole comparison is 15.3% against 7.65%. Social Security is a 12.4% tax and Medicare a 2.9% one; an employee pays half of each — 6.2% and 1.45% — and the employer pays the matching half. A contractor is both parties and pays all of it. On the worked example that is $18,270 of self-employment tax against $8,415 of employee payroll tax on the salary being compared, $9,855 more, and it is the single largest reason a contract rate has to exceed a salary divided by hours. Two provisions soften it and neither eliminates it. First, self-employment tax is charged on 92.35% of net profit rather than on all of it. That 7.65% haircut exists to put a contractor on the same footing as an employee, whose payroll tax is charged on wages after the employer's own half has already been paid out of the employer's pocket. Second, half of the self-employment tax is deductible above the line — an adjustment to income you take whether or not you itemize — which on this example is $9,135 of deduction, worth $2,010 at a 22% bracket. The ceiling is the third thing to understand, and it runs the opposite way from most people's intuition. The 12.4% Social Security half stops at $184,500 of net earnings for 2026; the 2.9% Medicare half never stops. So the self-employment penalty is at its heaviest at modest incomes, where every dollar carries the full 15.3%, and gets proportionally lighter as revenue climbs past the wage base. At $119,413 of net earnings in the example you are still well below the ceiling and paying the full rate on everything, which is exactly the income band where contracting looks least attractive on tax grounds alone.
The deduction a salary can never claim
One line in this comparison runs firmly in the contractor's favour, and it is large enough to change conclusions: the qualified business income deduction. It is 20% of net profit after the half-SE deduction, taken on the return without itemizing, and no salary can claim a cent of it. On the worked example it is $24,034 of deduction — worth $5,287 at a 22% bracket — and it is a substantial part of why the required contract revenue is $133,305 rather than something much higher. It also does more work as profit rises, which partly offsets the wage-base effect running the other way. Three limits sit on it, and this page models none of them, so treat the figure as an upper bound rather than a promise. The first is the specified service trade or business rule: consulting, law, accounting, health, financial services, performing arts, athletics and any business whose principal asset is the reputation or skill of its employees or owners. Above an income threshold the deduction for those businesses phases down and then disappears entirely — which catches a large share of the people who use a page like this, because independent consultants are the archetypal 1099 worker. The second applies to everyone above that same threshold: the deduction is capped by reference to W-2 wages the business paid and the unadjusted basis of qualified property it holds, both of which are typically near zero for a solo contractor with no employees and no equipment. The third is a taxable-income limitation that caps the deduction against income excluding capital gain. Below the threshold none of this bites and the plain 20% applies. Above it, the honest planning answer is to model the actual return or ask an accountant, because the difference between claiming the deduction and not is worth several dollars an hour on the rate you should be quoting.
What the employer was quietly buying
The reason a contract rate has to be higher than the salary is only half tax; the other half is a shopping list. On the worked example the employer is spending $12,500 a year on top of the $110,000 salary — $4,400 of 401(k) match, $6,600 toward health coverage, and $1,500 of other benefits such as life and disability cover, an HSA contribution or training — which makes the job worth $122,500 rather than $110,000, and every dollar of it is something a contractor buys back out of revenue. That is the list you can see. Four more things stop and none of them appears as a line anywhere. Unemployment insurance is the largest: an employer pays state and federal unemployment tax on your wages, and a contractor is not covered and cannot claim benefits at all, which turns a gap between contracts into a wholly uninsured risk. Workers' compensation stops too, so an injury on the job becomes a personal medical and income problem rather than a covered claim. Employer-paid disability and life cover stop, and replacing them privately is more expensive than the group rates you were on. And payroll itself stops: nobody withholds anything for you, so the year runs on four estimated tax payments due in April, June, September and January, computed by you and penalised quarter by quarter if they are late or short. That penalty is not a fine for filing late — it is interest charged from the quarter the income was earned, and it applies even when you settle in full at filing. Building the habit of moving roughly a third of every invoice into a separate account the day it lands is the single most useful operational change a new contractor makes, and it is a bigger predictor of a good first year than the rate itself.
Hours, not rates, are what sink contractors
The rate is only as honest as the hours you divide by, and this is where careful people still get it wrong. Start with the salary side, because even that is misread. A standard year is 260 working days; take out 25 paid days off and you actually work 235 days, or 1,880 hours. So a $110,000 salary is $58.51 an hour of work, not the $52.88 that dividing by 2,080 suggests. The contractor side is worse. Hours worked and hours billed are different quantities, and the gap is where contracting businesses fail. Holidays and sick days are unbilled. So is every hour of admin, invoicing, chasing payment, bookkeeping, contract review, professional development, and the sales work that produces the next engagement — and so are the weeks between contracts, which is the largest item of all and the one nobody budgets for. Something near 1,800 billable hours is a realistic full-time figure for an established contractor with steady work; entering 2,080 assumes you bill every working hour of the year, which quietly understates the rate you need by about 13%. The sensitivity is easy to feel: every 100 hours you cannot bill raises the required rate by about $4.36 an hour on this example. Two honest caveats on the number the page produces. It is deliberately conservative in one respect — the self-employed health insurance deduction, which lets a contractor deduct their own premiums above the line, is left out, and including it would lower the required rate by roughly $0.81 an hour here. And it solves only for standing still. $74.06 an hour, 1.27 times the salary's own hourly rate, is the point at which the contract and the job leave you in exactly the same position. It is a floor to clear, not a target to hit, because the reason to contract is the margin above it.
Frequently asked questions
What rate does a contract have to pay to beat my salary?
More than most people guess. Against a $110,000 salary with a 4% match, $550 a month of employer-paid coverage, 25 paid days off and $1,500 of other benefits, and carrying $4,000 of business costs, the answer is $133,305 of contract revenue a year — 21% above the salary — which over 1,800 billable hours is $74.06 an hour. The salary itself works out at $58.51 an hour once the paid days are taken out of the year, so the contract has to pay 1.27 times the apparent rate before you are a dollar better off. None of that difference is profit.
Why can I not just divide the salary by 2,080?
Because that arithmetic assumes you bill every working hour, receive the same benefits and pay the same tax, and all three are wrong. A salaried year of 260 working days less 25 paid days off is 1,880 hours actually worked, so the first correction is to the salary itself: $110,000 is $58.51 an hour of work, not the $52.88 that dividing by 2,080 suggests. Three further corrections take it from there to $74.06 — a contractor bills fewer hours than they work, pays both halves of payroll tax, and buys back the coverage the employer was providing.
What is self-employment tax and why is it 15.3%?
It is Social Security and Medicare with both halves on you. An employee pays 6.2% and 1.45% and the employer pays the matching 7.65%; a contractor is both parties, so 12.4% plus 2.9% — 15.3%. On the worked example that is $18,270 against $8,415 as an employee, $9,855 more. Two things soften it: the tax is charged on 92.35% of net profit rather than all of it, and half of the tax is deducted above the line, which at a 22% bracket is worth $2,010. Neither closes the gap; they narrow it.
Does the 15.3% apply to everything I earn?
The Medicare half does — 2.9% with no ceiling ever. The Social Security half stops at $184,500 of net earnings for 2026. That means the self-employment penalty is at its worst at modest incomes and gets proportionally lighter as revenue rises past the wage base, which is the opposite of what most people expect. At $119,413 of net earnings in the example you are still below the ceiling and paying the full 15.3% on all of it.
What is the QBI deduction and do I actually get it?
The qualified business income deduction is 20% of net profit after the half-SE deduction, and it is the one line that runs in a contractor's favour — a salary cannot claim a cent of it. In the example it is $24,034 of deduction, worth $5,287 at a 22% bracket. Two limits this page does not model and you should check before relying on it: above an income threshold the deduction phases down for a specified service trade or business — consulting, law, accounting, health, financial services — and above that same threshold it is also limited by W-2 wages paid and by the basis of qualified property. There is a taxable-income limitation too, which the page does not apply.
What exactly does the employer stop paying for?
In the example, $12,500 of visible money: $4,400 of match, $6,600 toward health coverage and $1,500 of other benefits. Four more things stop that carry no line here — unemployment insurance, which a contractor cannot claim at all; workers' compensation; employer-paid disability and life cover; and payroll itself, which becomes four estimated tax payments a year that nobody withholds for you. Missing those carries an underpayment penalty on top of the tax.
Is this rate a target or a floor?
A floor, and deliberately a conservative one. The page leaves out the self-employed health insurance deduction, which lets a contractor deduct their own premiums above the line; including it would lower the required rate by roughly $0.81 an hour here. It also assumes you bill the hours you entered. Every 100 hours you cannot bill raises the rate you need by about $4.36. Clear the number, then price the reason to contract — which is usually the upside above it, not the number itself.