How this calculator works
The tool runs both offers through the same steps a tax preparer would, using 2026 tax-year figures. Nothing is hidden. This is exactly what the engine does:
The 1099 side
- Annualize the pay. Hourly rate × hours per week × weeks per year × your billable utilization (the share of hours you actually invoice; the default is a realistic 80%, and you can set it to 100% for naive full-billing math).
- Self-employment tax: 15.3% on 92.35% of your Schedule C profit (gross minus business expenses): 12.4% Social Security (capped at the $184,500 wage base for 2026) plus 2.9% Medicare (uncapped), plus the 0.9% Additional Medicare tax above the threshold for your filing status. Your self-paid health premium isnot subtracted here: under IRC §162(l) it lowers your income tax, not your SE-tax base.
- Deduct half the SE tax, as the IRS allows, and your self-paid health premium, before computing income tax.
- QBI deduction (§199A): 20% of qualified business income, but capped by the §199A overall limit at 20% of your taxable income before QBI. For most pure-1099 filers the taxable-income limit is the one that binds, so the deduction works out to 20% of taxable income. (The separate high-earner phase-out is flagged with a caveat rather than modeled; see limitations below.)
- Federal income tax: standard deduction for your filing status, then a walk through the 2026 brackets.
- State income tax at your state's flat effective rate (see methodology below).
The W-2 side
- FICA: 6.2% Social Security (capped) + 1.45% Medicare (+0.9% above the threshold).
- Federal and state income tax, same method as the 1099 side.
- Benefits valued in dollars, itemized separately: employer health contribution, 401(k) match (match % × salary), and PTO (salary ÷ 260 working days × PTO days). Take-home and benefits-included “effective total comp” are both shown, never silently blended.
The break-even numbers are then solved numerically: the 1099 hourly rate whose take-home equals the W-2 offer's effective total comp, and the W-2 salary equivalent of the 1099 offer, holding your assumptions constant.
Why 1099 rates must be higher
Dividing a salary by 2,080 hours tells you almost nothing. Three things push the required 1099 rate far above that number:
- Both halves of payroll tax. A W-2 employer pays 7.65% of your salary in FICA on top of your paycheck. Self-employed, you pay both halves: 15.3% self-employment tax.
- Benefits stop being free. Employer health premiums (about $7,885/year for single coverage on average), 401(k) match, and paid time off all become your problem: you either buy them yourself or lose them.
- Not every hour is billable. Admin, proposals, sales and gaps between contracts mean most independents bill closer to 80% of their working hours than 100%.
A worked example (single filer, Texas, computed with this very calculator): a $100,000 W-2 offer with typical benefits (average employer health contribution, 4% match, 15 PTO days) is worth about $96,800 a year in take-home plus benefits. The naive hourly equivalent is $48/hr. But to actually match the offer on 1099 terms (paying your own SE tax and a $625/month health premium) you'd need about $66/hr even billing 100% of your hours: a 37% premium. At a realistic 80% utilization it takes about$82/hr. That is why experienced contractors quote 30–50% (or more) above the W-2 equivalent.
Frequently asked questions
How much more should I charge as a 1099 contractor?
A common rule of thumb is 30–50% above the W-2 hourly equivalent (salary ÷ 2,080), and our math supports it: matching a $100,000 W-2 offer with typical benefits takes about $66/hr on 1099 terms even if you bill every single hour, 37% above the naive $48/hr. If you bill a realistic 80% of your hours, the break-even climbs to about $82/hr. The gap covers self-employment tax, self-paid health insurance, and the benefits (401(k) match, PTO, employer health premiums) that a salary quietly includes.
Is 1099 or W-2 better?
Neither is better in general: it depends entirely on the numbers. A W-2 job includes employer-paid payroll tax (7.65%), and usually health coverage, retirement match, and paid time off. A 1099 contract can come out ahead if the rate is high enough to cover all of that plus the extra self-employment tax, and it adds flexibility and deductible business expenses. This calculator puts both offers in the same units (after-tax dollars) so you can compare like with like.
Do 1099 workers pay more tax?
Usually yes, at the same gross income. Self-employed workers pay both halves of Social Security and Medicare (15.3% self-employment tax, versus 7.65% withheld from W-2 pay), though this is softened by deducting half of the SE tax and, for many, the 20% qualified business income (QBI) deduction. The bigger financial difference is often not the tax itself but the benefits a W-2 employer pays for.
What is the self-employment tax rate for 2026?
The self-employment tax rate is 15.3%: 12.4% for Social Security plus 2.9% for Medicare, applied to 92.35% of your net self-employment earnings. For 2026 the Social Security portion stops at the $184,500 wage base; the Medicare portion has no cap, and an extra 0.9% applies above $200,000 (single) or $250,000 (married filing jointly).
Does this calculator include state income taxes?
Yes, using a flat effective rate for each state (and DC) derived from published government data: state income tax collections per person divided by average personal income. It is an average, not your exact bracket, and local/city income taxes are not included. States with no wage income tax (like Texas, Florida, and Washington) are correctly shown at $0.
What is the QBI deduction and does this tool apply it?
The Section 199A qualified business income deduction lets many self-employed people deduct 20% of qualified business income. But §199A(a) caps it at the lesser of that or 20% of your taxable income before the deduction. For most people whose income is mostly 1099 work, that taxable-income limit is the binding one, so the deduction effectively becomes 20% of taxable income. This calculator applies that overall limit. The separate high-earner phase-out (which begins around $201,750 of taxable income for single filers in 2026) is not modeled. The tool flags it with a caveat instead of guessing.
What this calculator does not do
Known limitations. The QBI deduction is modeled with the §199A(a) overall limitation (the lesser of 20% of qualified business income or 20% of taxable income), but the high-earner W-2/UBIA phase-out is deferred and flagged with a caveat rather than computed. The OBBBA minimum-deduction rules under §199A(i) (a $400 floor for taxpayers with at least $1,000 of qualified business income, and its material-participation test) are not modeled either: they only change the answer at taxable incomes below roughly $2,000, far under the range this calculator is built for. There is no capital-gain input (net capital gain is treated as zero), and local or city income taxes are not modeled, only the state's flat effective rate.
Every constant in the engine carries its source and a verified date (last verified 2026-07-15), and the calculation suite is tested against hand-worked IRS worksheet examples. Full methodology and sources on the methodology page.These are estimates for planning, not tax advice.For filing decisions, talk to a CPA or enrolled agent.