1099 vs W-2 Calculator: What Contractor Rate Matches Your Pay?
Offered a 1099 contract instead of a W-2 job? Enter the W-2 wage and its benefits to see the hourly rate you need as a contractor to come out even. A $25-an-hour W-2 job with $400 a month of health cover equals about $29.57 an hour on a 1099.
Break-even 1099 rate
—
| W-2 pay a year | |
|---|---|
| Less your Social Security and Medicare (7.65%) | |
| Plus benefits you would give up | |
| What the W-2 job is worth | |
| 1099 profit needed (before self-employment tax) | |
| Self-employment tax on it |
Income tax is left out because it is about the same either way (a contractor deducts half of the self-employment tax and business costs). Not tax or legal advice.
W-2 wages and the 1099 rates that match them
40 hours a week. "With benefits": $400 a month of health cover, a 3% 401(k) match and 10 paid days off.
| W-2 wage | 1099 rate, no benefits | 1099 rate, with benefits |
|---|---|---|
| $18 an hour | $19.36 | $23.58 |
| $20 an hour | $21.51 | $25.89 |
| $22 an hour | $23.66 | $28.20 |
| $25 an hour | $26.89 | $31.67 |
| $30 an hour | $32.26 | $37.44 |
| $35 an hour | $37.64 | $43.21 |
How it's calculated
- What the W-2 job is worth: wage × hours × 52, less your own 7.65% Social Security and Medicare, plus the benefits (health cover, the 401(k) match, other benefits).
- The 1099 profit that leaves the same after self-employment tax: worth ÷ (1 − 15.3% × 92.35%).
- The rate: (profit + business costs) ÷ billable hours, where paid days off on the W-2 job become unpaid days as a contractor.
Frequently Asked Questions
What is the difference between a 1099 contractor and a W-2 employee?
A W-2 employee has taxes withheld, gets overtime and unemployment insurance, and often benefits; the employer pays half of Social Security and Medicare. A 1099 contractor is self-employed: paid without withholding, pays the full 15.3% self-employment tax and estimated taxes, and buys their own insurance and time off.
How much more should a 1099 rate be than a W-2 wage?
Enough to cover the employer half of FICA, the benefits you give up and your unpaid time off. A $25-an-hour W-2 job with $400 a month of health cover breaks even at about $29.57 an hour as a contractor (18% more); with a 3% match, 10 paid days off and $3,000 of business costs it is $33.17 (33% more). The common rule of 20% to 30% more is a reasonable starting point.
What is the self-employment tax rate?
15.3%: 12.4% for Social Security on net earnings up to $184,500 and 2.9% for Medicare. It is charged on 92.35% of net profit, and half of it is deductible. On $60,000 of profit it is $8,478.
Can my employer just call me a 1099 contractor?
No. Whether you are an employee or a contractor depends on the facts: who controls how, when and where you work, who supplies the tools, and whether the work is part of the company's regular business. The Department of Labor and IRS have their own tests, and some states (such as California) use a stricter one. Misclassified workers can claim back wages and taxes.
Do 1099 contractors pay quarterly taxes?
Usually, yes. With no tax withheld, contractors who expect to owe $1,000 or more for the year pay estimated tax four times a year (April, June, September and January) to avoid penalties.
Are owner-operator truck drivers 1099?
Owner-operators who lease their truck to a carrier are commonly paid on a 1099, while company drivers are W-2 employees. Owner-operators can deduct business costs and per diem, but they pay their own fuel, insurance and maintenance.
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