1099 vs W-2 Calculator: What Contract Rate Matches a Salary?

Quick answer: how much more should a contractor charge?

Usually about 1.3 to 1.5 times the salary's hourly rate on middle incomes (more on lower salaries, a little less on high ones), and more again if you'll have long gaps between contracts. A $90,000 salary works out to $43.27 an hour over 2,080 hours. With a 4% 401(k) match, an average employer health plan, six unbilled weeks a year and $2,000 of expenses, you'd need about $59.18 an hour as a contractor to keep the same amount after taxes in a state with no income tax: 1.37 times as much. The Small Business Administration puts an employee's total cost to an employer at 1.25 to 1.4 times salary, which is the same idea seen from the other side (SBA).

What changes when you go from W-2 to 1099

Self-employment tax: you pay both halves

Employees pay 7.65% for Social Security and Medicare and the employer quietly pays another 7.65%. As a contractor you pay both: 15.3% on 92.35% of your profit, with the 12.4% Social Security part stopping at $184,500 in 2026 ($192,300 in 2027), plus 0.9% Additional Medicare above $200,000 ($250,000 joint). Half of it is deductible from income for income tax (IRS).

profit × 92.35% × 15.3% = Social Security part capped at the wage base

At the default contract ($108,400 of profit): $15,316, against $6,775 of Social Security and Medicare on the $90,000 salary.

The QBI deduction in 2026

Contractors who run their own business can usually deduct up to 20% of qualified business income (profit minus half the self-employment tax, self-employed health insurance and your own retirement plan contributions), limited to 20% of taxable income. The 2025 tax law made it permanent (IRS; 26 U.S.C. § 199A).

• Income limits: above $201,750 of taxable income ($403,500 joint) in 2026, extra limits phase in over the next $75,000 ($150,000 joint). For a one-person business with no employees, the deduction shrinks in proportion across that range and only the $400 minimum is left above it (more if the business pays W-2 wages or owns equipment or property). "Specified service" businesses (health, law, accounting, consulting, financial services, performing arts and athletics, among others) lose it faster, roughly with the square of the remaining share, and get nothing at all above the range. At $280,000 of single profit, for example, a non-service business deducts about $19,800 and a service business about $7,402.
• New minimum: at least $400 if you have $1,000 or more of business income you actively run.
• States: QBI comes off after adjusted gross income, so most states, which start from AGI, don't give it. The calculator leaves it out of state tax.

In the default example the deduction is $15,063, which recovers part of the extra self-employment tax.

What benefits are worth

In private industry, benefits make up 30.0% of employer spending on compensation: $14.07 of $46.89 an hour in June 2026, including 7.5% paid leave, 7.4% health insurance, 3.3% retirement and 7.2% legally required benefits such as the employer's Social Security and Medicare (BLS). Health insurance is the big one: the average premium for single coverage was $9,325 in 2025, of which workers paid $1,440; family coverage was $26,993, with workers paying $6,850 (KFF). Enter your own figures; if you'd have family coverage, the contract rate you need rises sharply.

Unbilled time: the cost most people miss

A salary pays you for holidays, vacation and sick days; private-industry workers average 11 vacation days after a year and 7 sick days (BLS), plus paid holidays. As a contractor you only earn when you bill, and there are often gaps between contracts. That's why the "unbilled weeks" input matters so much:

Health insurance as a contractor

Self-employed people can usually deduct their health insurance premiums from income (not from self-employment tax) if they aren't eligible for an employer plan (IRS Form 7206). Marketplace plans may come with premium tax credits based on income, but the extra subsidies of 2021–2025 ended after 2025, so many people pay more in 2026; check healthcare.gov for your price (ASTHO). If you'd join a spouse's employer plan instead, enter what that adds to your household's premium; that's usually far less than $9,325, which lowers the rate you need, but you can't take the self-employed health insurance deduction for months you could join an employer plan, so the calculator will slightly understate your tax in that case.

Retirement savings as a contractor

You can still save a lot, just without a match. In 2026 a Solo 401(k) allows $24,500 of your own contributions (plus catch-ups from 50) and an employer contribution of up to 25% of compensation (about 20% of net self-employment earnings), up to $72,000 in total; a SEP-IRA allows the employer part only (IRS; IRS). Those contributions reduce income tax but not self-employment tax, and they also reduce the income your QBI deduction is based on.

Business expenses you can deduct

• Home office: the simplified method allows $5 per square foot, up to 300 square feet ($1,500) (IRS).
• Driving for work: 72.5 cents a mile in 2026 (IRS).
• Equipment, software, professional insurance, accounting and training used for the business.

Expenses reduce both income tax and self-employment tax, but you still pay for them, so a contract with high costs needs a higher rate.

Quarterly taxes and 1099 forms

Nobody withholds tax from contract pay, so you pay estimated tax four times a year: for 2026, by April 15, June 15 and September 15, 2026 and January 15, 2027 (IRS). The quarterly tax calculator works out the amounts, and the self-employment tax calculator shows how much of each payment to set aside. Clients send a Form 1099-NEC if they pay you $2,000 or more in a year for payments from 2026, up from $600 (IRS); you owe tax on all your income whether or not you get one.

Are you really a contractor?

The label on your contract doesn't decide it. The IRS looks at behavioral control (who decides how the work is done), financial control (who pays expenses, can you profit or lose) and the relationship (benefits, permanence) (IRS). Under federal wage law, the Labor Department proposed a new test in February 2026; its 2024 rule still applies in private lawsuits (Federal Register). Several states are stricter: California's "ABC test" presumes you're an employee unless you're free from the company's control, the work is outside its usual business, and you run an independent business of that kind (California); Massachusetts, New Jersey and Illinois use versions of it for some laws.

W-2 vs 1099 vs C2C

Staffing firms often offer three ways to pay for the same role: W-2 through the agency (taxes withheld, sometimes benefits), 1099 to you as a sole proprietor, or corp-to-corp (C2C) to your own company. C2C usually pays the highest rate because the agency pays no payroll tax or benefits. Taxes on C2C depend on how your company is set up; as a single-member LLC taxed as a sole proprietor it works like 1099 in this calculator.

State tax changes the picture too: at the default numbers the break-even rate is $58.27 in California and $58.90 in New York. State disability and paid-leave programs such as California's SDI come out of W-2 pay but usually don't apply to the self-employed (some states let you opt in).

Common questions

Is 1099 or W-2 better?

It depends on the rate. At the same pay, W-2 is better because the employer pays half your payroll tax and your benefits. A 1099 contract comes out ahead only if the rate is high enough, often 1.3 to 1.5 times the salary's hourly rate, more on lower salaries.

How do I convert a salary to a 1099 hourly rate?

Divide the salary by 2,080 for the hourly equivalent, then multiply by about 1.3 to 1.5 (more on lower salaries) to cover self-employment tax, benefits and unbilled time. The calculator works out your exact figure.

How much tax do I pay on 1099 income?

Self-employment tax of 15.3% on 92.35% of profit, plus income tax after the QBI and other deductions. Set aside roughly 25% to 35% of what you're paid, depending on your income and state.

Do 1099 contractors pay more taxes?

They pay the employer's half of Social Security and Medicare (7.65%), partly offset by deducting half of it and by the QBI deduction.

What is the QBI deduction?

A deduction of up to 20% of business income for the self-employed and owners of pass-through businesses, permanent since the 2025 tax law, with limits above $201,750 of taxable income ($403,500 joint) in 2026.

Is C2C better than W-2?

C2C usually pays a higher rate but you cover all taxes, insurance and benefits through your own company. Compare them after taxes as you would 1099.

Do I get a 1099 for every client?

Generally from business clients who pay you $2,000 or more directly in a year (from 2026). Payments by card or through apps like PayPal are reported on Form 1099-K instead, and payments to a corporation usually aren't reported. Either way, all of your income is taxable.

Sources

1. Self-employment tax (Social Security and Medicare taxes) — Internal Revenue Service. Accessed October 15, 2026.
2. Qualified business income deduction — Internal Revenue Service. Accessed October 15, 2026.
3. 26 U.S. Code § 199A (as amended by Pub. L. 119-21) — Legal Information Institute, Cornell Law School. Accessed October 15, 2026.
4. Instructions for Form 7206, Self-Employed Health Insurance Deduction — Internal Revenue Service. Accessed October 15, 2026.
5. Employer Costs for Employee Compensation, June 2026 — U.S. Bureau of Labor Statistics. Accessed October 15, 2026.
6. 2025 Employer Health Benefits Survey — KFF. Accessed October 15, 2026.
7. Paid sick and vacation days by length of service — U.S. Bureau of Labor Statistics. Accessed October 15, 2026.
8. How much does an employee cost you? — U.S. Small Business Administration. Accessed October 15, 2026.
9. One-participant 401(k) plans — Internal Revenue Service. Accessed October 15, 2026.
10. 401(k) limit increases to $24,500 for 2026 — Internal Revenue Service. Accessed October 15, 2026.
11. Simplified option for home office deduction — Internal Revenue Service. Accessed October 15, 2026.
12. IRS sets 2026 business standard mileage rate at 72.5 cents per mile — Internal Revenue Service. Accessed October 15, 2026.
13. Estimated tax for individuals: FAQs — Internal Revenue Service. Accessed October 15, 2026.
14. Instructions for Forms 1099-MISC and 1099-NEC — Internal Revenue Service. Accessed October 15, 2026.
15. Independent contractor (self-employed) or employee? — Internal Revenue Service. Accessed October 15, 2026.
16. Employee or independent contractor status under the FLSA (proposed rule, February 27, 2026) — U.S. Department of Labor, Federal Register. Accessed October 15, 2026.
17. Employment status FAQs (ABC test) — California Labor and Workforce Development Agency. Accessed October 15, 2026.
18. ACA enhanced premium tax credits: legislative developments 2025–2026 — ASTHO. Accessed October 15, 2026. Secondary source.

Estimates under 2026 federal and state rules for one person with no other income. Local business taxes (such as New York City's or Portland's) aren't included. Research checked October 15, 2026.