W-2 vs 1099 Calculator
Updated August 2026 · Free · No sign-up
Compare a W-2 salary against a 1099 contract rate on equal footing — self-employment tax, benefits you'd self-fund, unpaid time off, and the conversion multiplier that makes offers comparable.
Quick answer: Rule of thumb: 1099 rate ≈ W-2 salary ÷ 1,000-1,400 hours × safety margin — practically, W-2 salary × 1.3-1.5 in annual revenue terms. An $80,000 W-2 offer with benefits ≈ $104,000-120,000 of 1099 billings, or roughly $55-65/hour on contract.
Why the Raw Numbers Lie
$60/hour on 1099 sounds like $124,800 against an $80,000 salary — a 56% premium. But the contractor pays both halves of FICA (+7.65%), buys their own health insurance, funds their own retirement without a match, earns zero paid holidays or sick days, absorbs bench time between contracts, and carries business costs. Stack those honestly and the premium shrinks or inverts.
The Adjustment Stack
| Factor | Typical annual impact |
|---|---|
| Employer FICA half you now pay | −7.65% of net earnings (SE tax mechanics) |
| Health insurance (self-purchased) | −$6,000 to −$15,000 |
| 401(k) match foregone | −$2,000 to −$6,000 (see the match calculator) |
| PTO + holidays unpaid (~25 days) | −10% of working time |
| Bench/gap risk | −0 to −20% of theoretical hours |
| Unemployment insurance & workers comp | Foregone safety net (hard to price, not zero) |
Worked Example
$80,000 W-2 + $15,000 benefits vs $60/hour 1099 at 1,800 billable hours:
1099 revenue = $108,000. Minus SE-tax extra (~$7,600), health/retirement self-funding (~$15,000) → ~$85,400 W-2-equivalent vs $95,000 total W-2 package. The "56% premium" is actually a 10% discount — the contract needs to be ~$67/hour to genuinely match. Full pricing logic from the contractor side lives in the freelance rate calculator.
Beyond Money: The Decision Matrix
- Choose 1099 when: the effective premium is real (1.4x+), you value schedule control, you have multiple client demand, you're bridging to a business, or you can stack contracts.
- Choose W-2 when: you need predictable income, employer health coverage matters (families especially), you're optimizing for career ladders and promotions, or a mortgage application is coming (lenders discount 1099 income until 2 years of history).
- Watch for misclassification: if the "contract" role sets your hours, tools, and supervision like an employee, it may be legally W-2 work — misclassified workers can recover the employer FICA and benefits through a back pay claim, and the IRS SS-8 process exists for exactly this.
1099 Tax Mechanics in Brief
Self-employment tax = 15.3% on 92.35% of net earnings (Social Security to the wage base + Medicare uncapped), half deductible. No withholding means quarterly estimated payments — miss them and penalties accrue. The compensating upsides: business expense deductions, the QBI deduction where applicable, and Solo 401(k)/SEP-IRA limits far above employee caps — a disciplined contractor can shelter dramatically more for retirement.
Quick Conversion Table
| W-2 salary + benefits | Break-even 1099 hourly (1,800 hrs) | Comfortable 1099 hourly |
|---|---|---|
| $60,000 | ~$48 | $55+ |
| $80,000 | ~$63 | $72+ |
| $100,000 | ~$78 | $90+ |
| $130,000 | ~$100 | $115+ |
Frequently Asked Questions
How do I compare a 1099 rate to a W-2 salary?
Multiply the W-2 salary (plus benefits value) by 1.3-1.5 to get equivalent 1099 annual revenue, or divide that by realistic billable hours for the break-even hourly rate.
Why do 1099 contractors need higher rates?
They pay both FICA halves (+7.65%), self-fund health insurance and retirement, get no paid time off, and absorb gaps between contracts.
What is a good 1099 rate for an $80k salary?
Roughly $63/hour breaks even at 1,800 billable hours once SE tax and self-funded benefits are counted; $72+ makes the switch genuinely profitable.
Do 1099 contractors pay more taxes?
Same income tax rates, plus the employer half of FICA (7.65% extra) — partially offset by business deductions, the QBI deduction, and larger retirement-plan limits.
What is worker misclassification?
Treating a de facto employee as a contractor. If the client controls your hours, tools, and methods, you may legally be W-2 — with recoverable FICA and benefits.
Is W-2 or 1099 better?
Depends on the premium and your needs: 1099 wins at 1.4x+ effective premium with real autonomy; W-2 wins for stability, employer health coverage, and mortgage-friendly income.
✓ Formula verified • Last updated: August 20, 2026