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W-2 vs. 1099 Pay Comparator

Compare an employee offer with contract work after payroll tax, expenses, and benefits.

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01

There is no universal premium

Advice that every 1099 rate should be exactly 20%, 30%, or 50% higher is convenient but incomplete. The required premium depends on employer-paid health coverage, retirement contributions, paid leave, payroll tax, equipment, insurance, software, travel, collections, and the amount of time that can actually be billed.

A strong comparison starts with the W-2 package being replaced. Salary is only one line.

02

Separate revenue from usable compensation

Contract rate multiplied by billable hours produces gross business revenue. Subtract ordinary business expenses and an estimate of self-employment tax. Then reserve for unpaid vacation, holidays, sick time, administrative work, and gaps between assignments. Only after those adjustments is the number comparable with employee cash compensation.

The IRS generally describes self-employment tax as Social Security and Medicare tax for people who work for themselves. The commonly used calculation applies 15.3% to 92.35% of net earnings, subject to wage-base and additional Medicare rules.

03

Price uncertainty deliberately

A stable year-long contract with predictable billable hours is different from on-call projects. If the client can end work quickly, pays slowly, or prohibits other clients, the rate should reflect that risk. The contract should also clarify scope, expenses, payment timing, intellectual property, insurance, and classification.

Classification is not chosen merely by issuing a 1099. The actual relationship matters. When classification is uncertain, use official IRS guidance or professional advice.

WORKED EXAMPLE

Put it into practice

A $60,000 W-2 job with $9,000 in benefits is not automatically matched by $69,000 in contractor revenue. A contractor may still need to cover self-employment tax, $4,500 in expenses, unpaid time, and benefit replacement.

ACTION PLAN

What to do next

  1. List employer-paid benefits using annual dollar values.
  2. Estimate realistic billable weeks and hours.
  3. Add business expenses and unpaid administrative time.
  4. Compare the resulting annual value, not only hourly rates.

FAQ

Common questions

Is a 1099 worker taxed twice?

Self-employment tax generally includes both the employer and employee portions of Social Security and Medicare, with related income-tax adjustments. Income tax is separate.

Can I deduct every expense?

No. Tax deductibility depends on the expense and circumstances. Keep records and use IRS guidance or a qualified tax professional.

SOURCES

Official references

Sources support the rules and definitions discussed. Examples and planning interpretations are produced by Earn Plan Save.

Educational information only. This guide is not financial, tax, legal, or employment advice. Verify important decisions with official documents and an appropriate qualified professional.