How much more should I charge as a 1099 contractor than a W-2 salary?

Enough to cover the extra 7.65% employer share of payroll tax, the benefits you lose and your unpaid days off. For a typical salary with benefits that is often 20-40% more per hour. Enter your numbers to get your own break-even rate.

Do 1099 workers pay more tax than W-2 workers?

They pay the full 15.3% self-employment tax instead of 7.65% FICA, but can deduct half of it and their business expenses. Income tax itself works the same way.

Is it cheaper to hire a 1099 contractor or a W-2 employee?

Per hour, a contractor usually charges more, but the business avoids employer payroll taxes, unemployment insurance and benefits. Classification still has to follow the IRS rules.

What does an employer pay in payroll taxes for a W-2 employee?

7.65% FICA (6.2% Social Security up to $184,500 in 2026, 1.45% Medicare), FUTA of typically $42 a year, plus state unemployment tax.

No. It is an estimate before income tax. Check the IRS rules or a tax professional for your situation.

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1099 vs W-2 calculator

Compare a W-2 salary with a 1099 contractor rate on equal terms. The calculator adds the employer half of payroll tax a contractor pays themselves, the benefits and paid days off a contractor does not get, and shows the break-even hourly rate. It also shows what each arrangement costs the business.

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For the worker

W-2: salary + benefits - your 7.65% FICA$77,262.50

1099: 1,920 billable hours x $45.00$86,400.00

Less self-employment tax (15.3%)-$12,207.93

1099 value after self-employment tax$74,192.07

W-2 comes out ahead by$3,070.43

Break-even 1099 hourly rate$46.86

For the employer

Employer FICA (7.65%)$5,737.50

FUTA (0.6% of first $7,000)$42.00

SUTA$189.00

Total cost of the W-2 hire$88,968.50

Cost of the 1099 contractor$86,400.00

Before income tax, which is similar either way (a contractor deducts half of self-employment tax and business expenses). Worker classification is decided by the IRS common-law rules, not by which is cheaper: see the W-2 and W-4 guide. Rates from irs.gov and ssa.gov, checked October 27, 2026. An estimate, not tax advice.

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Why a 1099 rate has to be higher than the salary it replaces

A W-2 employee pays 7.65% FICA (6.2% Social Security up to the 2026 wage base of $184,500, plus 1.45% Medicare) and the employer pays the same again. A 1099 contractor pays both halves as self-employment tax: 15.3% on 92.35% of profit. On top of that a contractor buys their own health insurance and retirement savings and is not paid for holidays, vacation or sick days.

So a $75,000 salary with $8,000 of benefits and 20 paid days off is worth roughly what a contractor earns at a noticeably higher hourly rate. The calculator finds that break-even rate: the 1099 rate at which, after self-employment tax, you keep the same amount as the W-2 package after FICA.

The employer side: what a W-2 hire really costs

An employer pays the salary plus 7.65% employer FICA, federal unemployment tax (FUTA: 6.0% on the first $7,000, usually 0.6% or $42 a year after the state credit), state unemployment tax (SUTA, at a rate and wage base set by each state) and benefits. Workers' compensation insurance and payroll processing come on top and are not included here.

A contractor costs the invoice and nothing more, but the business must file a Form 1099-NEC for anyone paid $2,000 or more for services in 2026, by January 31 (February 1, 2027, as January 31 falls on a Sunday).

Cost is not the test for classification

Whether someone is an employee or a contractor is decided by the IRS common-law rules: behavioral control, financial control and the relationship between the parties. Paying someone on a 1099 when the work makes them an employee exposes the business to back payroll taxes and penalties. Use the cost comparison for pricing and budgeting, not to choose a classification.

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FAQ

Frequently asked questions

How much more should I charge as a 1099 contractor than a W-2 salary?: Enough to cover the extra 7.65% employer share of payroll tax, the benefits you lose and your unpaid days off. For a typical salary with benefits that is often 20-40% more per hour. Enter your numbers to get your own break-even rate.
Do 1099 workers pay more tax than W-2 workers?: They pay the full 15.3% self-employment tax instead of 7.65% FICA, but can deduct half of it and their business expenses. Income tax itself works the same way.
Is it cheaper to hire a 1099 contractor or a W-2 employee?: Per hour, a contractor usually charges more, but the business avoids employer payroll taxes, unemployment insurance and benefits. Classification still has to follow the IRS rules.
What does an employer pay in payroll taxes for a W-2 employee?: 7.65% FICA (6.2% Social Security up to $184,500 in 2026, 1.45% Medicare), FUTA of typically $42 a year, plus state unemployment tax.
Is this tax advice?: No. It is an estimate before income tax. Check the IRS rules or a tax professional for your situation.