Is a contract rate really better than a salary? Enter a W-2 offer with its benefits and a 1099 rate with its unpaid days off, expenses and self-employment tax to see both net values side by side and the hourly rate you need to break even.
Last updated:
W-2 employee offer
$
$
% of salary
$/ yr
What the employer pays toward health, dental, life insurance etc.
days
%
US FICA: 6.2% Social Security + 1.45% Medicare.
1099 contract
$
h
days
Vacation, holidays, sick days and gaps between contracts.
$/ yr
Equipment, software, insurance, accounting…
%
US: 15.3% (12.4% Social Security + 2.9% Medicare).
Enter your values to see the result.
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How to use the 1099 vs W-2 Calculator
Enter the W-2 offer: salary, bonus, retirement match, the value of employer benefits and paid days off.
Enter the 1099 contract: the hourly or annual rate, hours per week and the days you won't be paid for.
Add business expenses and check the self-employment tax rate for your country.
Read the break-even rate: the contract rate that gives you the same net value as the W-2 job.
Compare the details in the side-by-side table and the table of other contract rates.
The formulas behind the comparison
W-2 net value = salary + bonus − (salary + bonus) × employee payroll tax % + salary × match % + employer benefits.
1099 net value = rate × billable hours − expenses − SE tax, where billable hours = (260 − unpaid days off) × hours per day, and
SE tax = (revenue − expenses) × 92.35% × SE tax rate (the 92.35% factor is the US rule and can be turned off).
Break-even rate = (W-2 net value ÷ (1 − effective SE rate) + expenses) ÷ billable hours. With the US defaults the effective SE rate is 15.3% × 0.9235 ≈ 14.13%.
Example: an $85,000 salary with a 4% match, $9,000 of benefits and 7.65% payroll tax is worth 85,000 − 6,502.50 + 3,400 + 9,000 = $90,897.50. With 20 unpaid days at 8 hours a day you bill 1,920 hours; adding $3,000 of expenses, the break-even rate is (90,897.50 ÷ 0.85870 + 3,000) ÷ 1,920 ≈ $56.69/hr.
Quick reference: salary to break-even contract rate
Assumes 40 hours a week, 20 unpaid days off, a 4% match, $9,000 of benefits, $3,000 of expenses and US payroll and SE tax rates.
W-2 salary
Base hourly (÷ 2,080)
Break-even 1099 rate
Multiplier
$50,000
$24.04
$36.24
1.51×
$70,000
$33.65
$47.93
1.42×
$85,000
$40.87
$56.69
1.39×
$100,000
$48.08
$65.46
1.36×
$130,000
$62.50
$82.99
1.33×
$160,000
$76.92
$100.52
1.31×
Above the Social Security wage base the real SE tax rate drops to 2.9% (plus 0.9% Additional Medicare Tax at high incomes), so for very high earners enter a lower SE tax rate. Income tax is not included in either side.
Frequently asked questions
How do I compare a 1099 rate to a W-2 salary?
Add up everything the W-2 job gives you (salary, bonus, retirement match, benefits) minus your share of payroll tax. For the contract, multiply the rate by the hours you will actually bill, then subtract business expenses and self-employment tax. Compare the two net values, not the headline numbers.
What hourly rate do I need as a contractor to match a salary?
Divide the W-2 net value by (1 − effective SE tax rate), add your yearly expenses, then divide by your billable hours. Many contractors find they need roughly 1.3 to 1.6 times the salary's base hourly rate (salary ÷ 2,080), depending on benefits and time off.
What is self-employment tax?
In the US, self-employed people pay both halves of Social Security and Medicare: 15.3% (12.4% + 2.9%). It is charged on 92.35% of net self-employment earnings, and Social Security applies only up to the yearly wage base. Employees pay only half, 7.65%, and the employer pays the other half.
Does this include income tax?
No. Income tax depends on your total household income, deductions and location, so it is left out. Contractors can deduct half of their SE tax and business expenses, which lowers income tax somewhat, so the real gap can be a little smaller than shown.
Why count unpaid days off?
A contractor is paid only for hours billed. Vacation, public holidays, sick days and time between contracts reduce billable hours, while a W-2 employee is paid for those days. 20 to 30 unpaid days a year is a common planning figure.
How much are employer benefits worth?
Use what the employer pays, not what you pay. Employer-paid health insurance is often several thousand dollars a year for single coverage and much more for family coverage. Ask HR for the employer contribution or check your benefits statement.
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