A contract rate always looks bigger than the matching salary, but a 1099 contractor pays both halves of Social Security and Medicare, buys their own health insurance, saves for retirement without a match and isn't paid for time off.
Here's how to compare the two fairly, and the rate you need to come out ahead.
What changes when you go 1099
| W-2 employee | 1099 contractor | |
|---|---|---|
| Social Security and Medicare | 7.65%, employer pays another 7.65% | 15.3% self-employment tax on 92.35% of profit |
| Federal income tax | Withheld from each paycheck | Paid in quarterly estimated taxes |
| Health insurance | Employer usually pays most of it | You pay all of it (often deductible) |
| Retirement | 401(k), often with a match | Solo 401(k) or SEP IRA, no match |
| Paid time off | Vacation, holidays, sick days | None |
| Deductions | Few | Business costs and the 20% QBI deduction |
How the comparison works
W-2 value = salary − federal tax − FICA + 401(k) match + benefits1099 value = profit − self-employment tax − federal tax − cost of replacing benefits and the matchBreak-even rate = the hourly rate where both values are equalWorked example
Example: $100,000 salary vs a contract, single filer
W-2: $100,000 − $13,170 federal tax − $7,650 FICA + $4,000 match + $7,000 benefits = $90,180 of value.
1099 at $70/hour, 40 hours, 46 weeks: $128,800 revenue − $3,000 costs = $125,800 profit; $30,230 in self-employment and income tax; less $11,000 to replace the match and benefits = $84,570.
Break-even: $74.39/hour, 1.55× the W-2 hourly equivalent of $48.08.
For quarterly tax payments on 1099 income, use the self-employment tax calculator.
How to use this calculator
- Enter the W-2 salary, the 401(k) match and what the employer pays toward benefits.
- Enter the contract hourly rate, billed hours a week and unpaid weeks a year.
- Add your business costs as a contractor and your filing status.
FAQs
How much more should a 1099 contractor charge?
Often 1.3× to 1.6× the W-2 hourly rate, depending on benefits, unpaid time off and costs. Use the break-even rate here as your floor.
What is self-employment tax?
Social Security and Medicare for the self-employed: 15.3% on 92.35% of net profit, covering both the employee and employer halves. Half of it is deductible.
What is the QBI deduction?
The qualified business income deduction lets many self-employed people deduct up to 20% of their business profit from taxable income, if taxable income is under $201,750 single ($403,500 joint) in 2026.
Are contractors paid for holidays?
No. Every week you don't bill is unpaid, so include vacation, public holidays, sick days and gaps between clients in unpaid weeks.
Sources
- IRS: Topic 554, Self-employment tax
- IRS: Self-employment tax (Social Security and Medicare taxes)
- IRS: tax inflation adjustments for tax year 2026 (Rev. Proc. 2025-32)
- SSA: 2026 Social Security changes (wage base $184,500)
Results are estimates and aren't tax, legal or financial advice. For your own return, check with a CPA or enrolled agent. Spotted a mistake? Tell us.