Use this 1099 vs W2 calculator to find out what a contract offer is really worth. Enter a salary to get the breakeven contract rate, or enter an hourly rate to get the equivalent salary. Built on 2026 federal tax rules, including self employment tax and the qualified business income deduction.
Educational tool, not tax advice. SavingsClub is not a licensed tax professional. For your specific situation, consult a CPA.
Enter your current W2 salary and we will solve for the 1099 hourly rate that leaves you equally well off.
Paid days off count as billable hours you lose as a contractor, so they raise the rate you need.
Enter the employer share of the premium, not the amount taken from your paycheck. Use 0 if there is no match or no coverage.
Business expenses include software, equipment, mileage, and professional insurance. They reduce the income that both self employment tax and income tax apply to.
Fill in your figures above, then click Calculate to see your breakeven rate, both sides of the tax math, and a full line by line breakdown.
The headline number is the whole point. In salary to contract mode it is the breakeven hourly rate: what you would need to charge to end up in exactly the same financial position you are in now. Charge less and you are taking a pay cut you may not have noticed. In contract rate to salary mode the headline is the W2 salary that would leave you equally well off, which is the figure to quote when a recruiter asks what you are looking for.
Three details do most of the work in this comparison, and they are the three that back of envelope math usually skips.
Billable hours. A salaried person who takes fifteen days off still gets paid for those days. A contractor who takes the same fifteen days earns nothing during them. The calculator strips paid days off out of the contracting side, which is why the breakeven rate is higher than dividing your salary by 2,080 would suggest.
Employer contributions. A retirement match and an employer health payment never show up on your pay stub as take home pay, but they are money spent on you. When you leave, they stop. Both are added to the employee side as real value.
The deduction stack. On the contracting side, business expenses come off before any tax is calculated, half of the self employment tax is deductible, health premiums you pay yourself are deductible, and the qualified business income deduction can remove up to another twenty percent. These are why a contractor at a higher gross number is not automatically worse off.
People assume the difference is a single tax rate. It is not. Four things change at once, and they push in opposite directions, which is exactly why the taxes 1099 vs w2 question resists a simple answer.
Every employee pays 7.65 percent of wages into Social Security and Medicare, and the employer quietly pays a matching 7.65 percent that never appears on the pay stub. Become a contractor and that second half becomes yours. The combined 15.3 percent is what everyone means by self employment tax.
It is not applied to your whole revenue, though. It applies to 92.35 percent of your net business earnings after expenses, a rough stand in for the employer half a business would have deducted. In 2026 the Social Security portion of 12.4 percent stops at the wage base of 184,500 dollars, capping that piece at 22,878 dollars. Medicare at 2.9 percent has no ceiling, and an extra 0.9 percent applies above 200,000 dollars for single filers or 250,000 dollars for joint filers. Our paycheck calculator shows the employee side of the same taxes.
Self employment tax looks worse than it is, because you deduct half of it from your income before federal income tax is calculated. This is an above the line deduction, so you get it whether or not you itemize. It does not refund the tax; it reduces the income the next tax applies to.
An employee who buys a laptop for work buys it with money already taxed. A contractor who buys the same laptop deducts it, shrinking the income that both self employment tax and income tax are calculated on. Two contractors with identical revenue can face very different tax bills purely because one tracks expenses and the other does not.
Self employed people can often deduct a further twenty percent of qualified business income before federal income tax applies. It was made permanent by the One Big Beautiful Bill Act. For 2026 the limits begin phasing in above 201,775 dollars of income for single filers and 403,500 dollars for joint filers, and are fully phased in at 276,775 and 553,500 dollars respectively. Below those thresholds most contractors take the full twenty percent without complication. Above them, whether your work counts as a specified service business starts to matter a great deal. To see how the underlying brackets work on their own, use our federal income tax calculator.
| Item | 2026 figure | Applies to |
|---|---|---|
| Social Security wage base | $184,500 | Both |
| Social Security rate | 6.2% employee, 12.4% self employed | Both |
| Maximum Social Security tax | $11,439 employee, $22,878 self employed | Both |
| Medicare rate | 1.45% employee, 2.9% self employed, no cap | Both |
| Additional Medicare tax | 0.9% above $200,000 single, $250,000 joint | Both |
| Self employment tax base | 92.35% of net earnings | 1099 |
| Standard deduction | $16,100 single, $32,200 joint, $24,150 head of household | Both |
| Qualified business income deduction | Up to 20% | 1099 |
| QBI phase in begins | $201,775 single, $403,500 joint | 1099 |
| Top marginal rate | 37% above $640,600 single, $768,700 joint | Both |
Sources: IRS Revenue Procedure 2025-32 for brackets, the standard deduction and qualified business income thresholds, and the Social Security Administration for the 2026 contribution and benefit base.
When a client names an hourly number, that number is the entire offer. There is nothing behind it. Understanding the pros and cons of 1099 vs w2 means pricing the things that quietly disappear.
The independent side is not all cost. Asking whether it is better to be 1099 or w2 without counting these is just as lopsided as ignoring health insurance.
The most repeated advice for anyone converting is to add thirty percent to the hourly equivalent of the salary. It is a reasonable first guess and a poor final answer, because the two largest variables are the two it ignores completely.
Health insurance is the first. Someone covered by a spouse's plan may need almost no premium adjustment. Someone buying a family policy alone can face over 1,500 dollars a month, which on a forty hour week is more than nine dollars an hour before anything else is counted. One rule of thumb cannot serve both people.
Business expenses are the second, and they cut the other way. A contractor with 18,000 dollars of legitimate deductible costs is calculating tax on a much smaller number than one with 1,000 dollars, so the revenue required to reach the same take home is different.
Add the Social Security wage base and the multiplier stops being a constant altogether. Below 184,500 dollars the full 12.4 percent applies. Above it, that portion switches off, so the marginal cost of self employment tax falls sharply at higher incomes. This is why a fixed percentage cannot be right across all income levels, and why the 1099 hourly rate calculator above solves for the rate rather than applying a multiplier.
Across a wide range of situations the honest answer tends to land between 1.25 and 1.5 times the hourly equivalent of the salary. Where you fall inside that band depends on facts specific to you.
A single filer on 95,000 dollars with a five percent match, 550 dollars a month in employer health payments and fifteen paid days off. Take home after federal tax and payroll tax is roughly 75,700 dollars, and employer contributions add about 11,400 dollars of value on top. Assuming 3,000 dollars of business expenses and a 500 dollar monthly premium of their own, the contracting side needs around 124,000 dollars of revenue over 1,960 billable hours. That is a breakeven near 63 dollars an hour, about 1.38 times the 45.67 dollars the salary works out to hourly. Anything under 63 dollars is a pay cut wearing a promotion's clothing.
Someone billing 85 dollars an hour over the same 1,960 hours brings in 166,600 dollars. After expenses, self employment tax, the QBI deduction, federal income tax and their own premiums, they keep roughly 117,000 dollars. To match that as an employee, with the same match and health assumptions, would take a salary near 135,000 dollars. If the best W2 offer on the table is 118,000 dollars, the contract is comfortably ahead.
A joint filer with 260,000 dollars of contracting revenue and 10,000 dollars of expenses sits below the joint QBI threshold of 403,500 dollars, so the deduction survives intact, though the taxable income limitation caps it. They have also passed the Social Security wage base, so a large share of their income no longer carries the 12.4 percent charge. Both effects favour contracting at this level, which is one reason the independent option looks better the higher up you go.
Figures are rounded illustrations produced by the calculator on this page. Your own result will differ.
Before comparing take home pay, it is worth checking whether the arrangement is permitted at all. Classification is not something an employer and a worker can simply agree on. It is determined by the facts of the working relationship, and a signed contract calling you an independent contractor carries very little weight if the facts say otherwise.
The IRS groups the evidence into three categories.
Behavioral control. Does the company direct how the work is done, not just what the result should be? Set hours, required tools, mandatory procedures, close supervision and company provided training all point toward employment.
Financial control. Who bears the business risk? A genuine contractor has unreimbursed expenses, an investment in their own equipment, the ability to seek other clients, and the possibility of losing money on a job. Being paid a fixed amount every two weeks with all costs covered points the other way.
Type of relationship. Are there employee style benefits such as paid leave, insurance or a retirement plan? Is the arrangement open ended rather than tied to a project? Is the work a core part of what the company does, rather than a peripheral service?
No single factor decides it, and the weighting depends on circumstances. But the classic pattern of misclassification is easy to recognise: a worker sits at a company desk, follows a company schedule, uses company equipment, reports to a company manager, has no other clients, and receives a 1099. Several states apply their own tests that are stricter than the federal one, and some use a standard that presumes employee status unless the business proves otherwise.
If this describes your situation, the contractor vs employee calculator on this page tells you what the arrangement costs you, but the more useful step may be a conversation with an employment lawyer or a Form SS-8 filing asking the IRS to determine your status.
Employees never think about this because their employer withholds tax from every paycheck. Nobody withholds anything from a contractor payment, so you send the money to the IRS yourself four times a year, generally in April, June, September and January.
Two things catch people out in their first year. The first is that underpayment penalties can apply even if you pay the full balance at filing time, because the rules expect the money throughout the year rather than in one lump. The second is that the amount you owe is larger than the income tax alone, since self employment tax rides along with it.
The habit that works is mechanical rather than clever. Open a second account. The day a client payment lands, move a fixed percentage across and do not touch that account for anything else. Most contractors find a figure between 25 and 35 percent covers federal obligations, though your own effective rate from the calculator above is a better guide than a generic percentage. If your income varies month to month, our budget planner is built for planning around an irregular paycheck.
Neither is better in every case. A 1099 arrangement wins when you can charge a rate high enough to cover self employment tax, your own health insurance, and unpaid time off, and when you have real business expenses to deduct. A W2 job wins when the employer covers half of your payroll tax, contributes to your retirement, subsidizes health coverage, and pays you for holidays and sick days. The honest answer depends entirely on the numbers, which is what the calculator above is for.
For most people the breakeven falls somewhere between 1.25 and 1.5 times the hourly equivalent of the W2 salary. The old advice to add 30 percent is a starting point, not an answer, because it ignores health insurance and unpaid time off, which vary enormously from person to person. Run your own numbers rather than trusting a rule of thumb.
Self employment tax is 15.3 percent, made up of 12.4 percent for Social Security and 2.9 percent for Medicare. It applies to 92.35 percent of your net business earnings. The Social Security portion stops at the 2026 wage base of 184,500 dollars, so the maximum Social Security piece is 22,878 dollars. Medicare has no cap, and an extra 0.9 percent applies above 200,000 dollars for single filers or 250,000 dollars for joint filers.
On payroll tax, yes. A W2 employee pays 7.65 percent and the employer pays the other 7.65 percent. A contractor pays the full 15.3 percent. But contractors get three offsets: they deduct half of the self employment tax, they deduct legitimate business expenses before tax is calculated, and they may qualify for the 20 percent qualified business income deduction. At the same gross number the contractor usually pays more, but contractors rarely work at the same gross number.
Start with your W2 take home pay after tax, then add the cash value of everything your employer contributes, such as the retirement match and its share of your health premium. That total is what your contracting income has to beat after self employment tax, income tax, and your own insurance premium. Divide the required revenue by the hours you can actually bill, not the hours in a year, because unpaid time off is time you earn nothing.
The qualified business income deduction lets many self employed people deduct up to 20 percent of their business income before federal income tax is applied. It was made permanent by the One Big Beautiful Bill Act. For 2026 the limits begin to phase in above 201,775 dollars of income for single filers and 403,500 dollars for joint filers. Below those thresholds most contractors take the full 20 percent. Above them the rules turn on whether your work counts as a specified service business.
Not simply because both sides agree to it. Worker classification is decided by the facts of the relationship, not by the label on the contract. The IRS looks at behavioral control, financial control, and the nature of the relationship. If the company sets your hours, tells you how to do the work, supplies your equipment, and you have no other clients, you are very likely an employee no matter what the paperwork says.
Generally yes. Nobody is withholding tax from your payments, so you send estimated payments to the IRS four times a year, usually in April, June, September, and January. Missing them can trigger an underpayment penalty even if you pay the full amount later. Many contractors move a fixed percentage of every payment into a separate account the day it arrives so the money is there when the deadline comes.
A W2 employer commonly pays a large share of the premium and that share is not taxed as income to you. As a contractor you buy your own policy on the individual market and pay the whole premium. The self employed health insurance deduction lets you subtract those premiums from your income, which softens the blow but does not erase it. For many people this single line is the largest hidden cost of going independent.
Contractors have far more headroom. A W2 employee can defer 24,500 dollars into a workplace plan in 2026. A self employed person with a Solo 401(k) can reach a total of 72,000 dollars across employee and employer contributions, subject to their earnings. The catch is that every dollar comes out of your own pocket, with no employer match, so the higher ceiling only helps if your income is high enough to use it.
Ordinary and necessary costs of running the business, which commonly include software subscriptions, professional insurance, a home office that meets the exclusive use test, business mileage, equipment, continuing education, and accounting fees. These reduce the income that both self employment tax and income tax are calculated on, which is why the same gross number can produce very different tax bills for two contractors.
No. This tool covers federal income tax, Social Security, Medicare, the additional Medicare tax, and the qualified business income deduction. State income tax, local tax, and city business taxes are not included, and in high tax states they can change the comparison meaningfully. Treat the result as a federal level estimate rather than a complete tax projection.