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W-2 Employee
1099 Contractor
1099 vs W-2: The Real Tradeoff
A W-2 job pays you a salary, but your employer also pays half of your Social Security and Medicare taxes (7.65%) and often contributes benefits you never see on a pay stub: health insurance premiums, 401(k) matches, and paid time off. A 1099 contractor keeps none of that safety net but can deduct business expenses and a home office, pays both halves of self-employment tax (15.3%), and may qualify for the 20% Qualified Business Income deduction.
The rule of thumb is that a contractor should charge roughly 25% to 40% more than the equivalent hourly employee rate to end up with the same true compensation. This calculator replaces the rule of thumb with your actual numbers, including a break-even hourly rate: the minimum you must charge as a 1099 contractor to match a specific W-2 offer.
Frequently Asked Questions
Is a 1099 or a W-2 better for take-home pay?
It depends on the numbers, not the label. W-2 workers get employer-paid benefits and pay only half of payroll taxes, while 1099 contractors can deduct business expenses, a home office, and half of self-employment tax, plus claim the 20% QBI deduction. Contractors usually need 25% to 40% higher gross pay to match the same W-2 package. Run both sides through the calculator above to see which wins for your situation.
What is the self-employment tax and how is it calculated?
Self-employment tax is 15.3%: 12.4% for Social Security (only on earnings up to the annual Social Security wage base) plus 2.9% for Medicare on all net earnings. It applies to 92.35% of your net profit, and you can deduct half of it from your income tax. This calculator uses the Social Security wage base of $176,100, the latest IRS-confirmed figure for tax year 2025.
What is the QBI deduction?
The Qualified Business Income deduction lets eligible self-employed people and pass-through owners deduct up to 20% of their qualified business income before income tax is calculated. It does not reduce self-employment tax. Most service freelancers and contractors qualify, though income thresholds can limit it. The toggle above applies the full 20% so you can compare with and without it.
Can I deduct a home office as a 1099 contractor?
Yes. If you use part of your home regularly and exclusively for business, you can deduct it either with the simplified method ($5 per square foot, up to 300 square feet, i.e. $1,500 max) or the actual-expense method. Enter your annual home office amount above and it reduces both your income tax and your self-employment tax.
What benefits do W-2 employees get that 1099 contractors do not?
Common ones: employer-subsidized health insurance (often worth $6,000 to $12,000+ per year), 401(k) matching contributions, paid time off and holidays, and the employer paying half of Social Security and Medicare taxes. Contractors can buy their own health insurance (often deductible) and fund a Solo 401(k) or SEP IRA, but those costs come out of their own pocket.
How much more should I charge as a 1099 contractor?
A common starting point is 25% to 40% above the equivalent W-2 hourly rate, which covers the extra 7.65% in payroll taxes plus the lost benefits. The break-even rate in the results above is more precise: it is the hourly 1099 rate at which your after-tax take-home equals the total value of the W-2 offer you entered.
We may earn a commission if you sign up for tax software or book a consultation with a CPA through links on this page. These partnerships help keep this calculator free, and they never change how the math works: the comparison above runs entirely on the numbers you enter.