W-2 Employee
$69,800
annual after-tax take-home
| Gross Salary | $85,000 |
| Employee FICA (7.65%) | -$6,503 |
| Federal Income Tax | -$8,697 |
| Cash Take-Home | $69,800 |
| + Benefits Value | +$10,000 |
| Total Compensation | $79,800 |
1099 Contractor
$63,500
annual after-tax take-home
| Gross Revenue | $85,000 |
| Business Expenses | -$5,000 |
| Self-Employment Tax | -$11,294 |
| Federal Income Tax | -$6,800 |
| Net Take-Home | $61,906 |
| + SE Tax Deduction Value | +$1,594 |
| Effective Take-Home | $63,500 |
Verdict
Based on the numbers, the W-2 option puts $16,300 more in your pocket annually.
Key Takeaway
When comparing W-2 vs 1099, always factor in self-employment tax (15.3%), lost benefits, and your business expenses. A common rule of thumb: 1099 contractors need to earn 25-30% more than W-2 employees just to break even.
W-2 vs 1099: Which One Actually Pays More?
One of the biggest decisions in your career is whether to stay a W-2 employee or go independent as a 1099 contractor. The 1099 hourly rate often looks higher on paper — $75/hour sounds better than $85,000/year — but the tax math tells a very different story.
This W-2 vs 1099 take-home pay calculator shows you both sides: what you actually keep after taxes, and whether that higher hourly rate is really worth it once you factor in self-employment tax, business expenses, and lost benefits.
The 30% Rule of Thumb
A widely used guideline: as a 1099 contractor, you need to earn at least 25-30% more than your W-2 equivalent just to break even. Why? You're paying both halves of FICA (15.3% vs 7.65%), buying your own benefits, and absorbing business expenses. Our calculator gives you the exact number.
Beyond the Paycheck
Money isn't everything. 1099 work offers flexibility, the ability to deduct business expenses, and control over your schedule. W-2 employment offers stability, employer-sponsored health insurance, paid time off, and often a 401(k) match. This calculator focuses on the financial comparison so you can make an informed choice.
W-2 vs 1099 FAQ
Is it better to be a W-2 or 1099?It depends on your situation. 1099 contractors often need 25-30% higher gross pay to match W-2 total compensation after taxes and benefits. This calculator helps you find your exact break-even point.
How do I convert W-2 salary to a 1099 hourly rate?Take the W-2 salary, add 30% for taxes and benefits, then divide by billable hours (typically 1,800/year). Example: $85,000 × 1.3 = $110,500; divided by 1,800 = $61/hour minimum.
What extra taxes do 1099 contractors pay?1099 contractors pay self-employment tax of 15.3% (vs 7.65% for W-2). They also can't split this cost with an employer. However, they can deduct business expenses and half of the SE tax.
Does this calculator include state taxes?No, this is a federal comparison. State income taxes vary and would affect both scenarios similarly (if the state has income tax).