Comparing a 1099 contract offer to a W-2 salary offer is harder than it looks, because the two numbers on paper aren't measuring the same thing. A $120,000 contract rate and a $100,000 salary aren't apples to apples once you account for the self-employment tax a contractor pays alone and the benefits an employer quietly funds on a salaried employee's behalf. This calculator strips both offers down to a comparable net figure so you can see which one actually pays more.
How it works
On the 1099 side, the calculator subtracts your deductible business expenses from your contract rate to get net profit, then runs that net profit through the same self-employment tax formula as the SE Tax Calculator — 92.35% of net profit taxed at 12.4% for Social Security (capped at the annual wage base) plus 2.9% for Medicare (uncapped). That tax comes out of the contract rate to leave your contract net after SE tax. If business expenses meet or exceed the contract rate, net profit is zero or negative and the calculator clamps self-employment tax to zero rather than computing tax on a loss.
On the W-2 side, the calculator simply adds your salary to the dollar value of your employer-paid benefits — health insurance premiums, 401(k) match, and similar perks — to get your W-2 total compensation. The difference between the two is the contract net after SE tax minus the W-2 total; a positive number means the 1099 offer nets out ahead, a negative number means the W-2 offer does.
Worked example
Say you're weighing a $120,000 1099 contract with $4,000 in deductible business expenses against a $100,000 W-2 salary with $12,000 in employer-paid benefits.
- Contract net profit: $120,000 − $4,000 = $116,000
- Self-employment tax on that profit: $16,390.28
- Contract net after SE tax: $120,000 − $4,000 − $16,390.28 = $99,609.72
- W-2 total compensation: $100,000 + $12,000 = $112,000
- Difference: $99,609.72 − $112,000 = −$12,390.28
Even though the contract rate is $20,000 higher than the salary on paper, the W-2 offer nets out $12,390.28 ahead once self-employment tax and benefits value are accounted for. That gap is the real cost of being your own employer for tax purposes — it's not a rounding effect, it's the second half of FICA plus whatever benefits you'd otherwise have to buy yourself.
How to interpret your result
Use this as a starting point for negotiation, not a final verdict. If the 1099 rate comes out behind, that tells you roughly how much higher the contract rate needs to be to match the W-2 offer on this narrow slice of the math — often the SE tax gap plus the benefits gap, since both scale with the numbers you enter. If it comes out ahead, remember that a contract still carries risks a salaried role doesn't: no unemployment insurance, no guaranteed hours, and income that can disappear the moment a client relationship ends.
This is a simplified comparison. It isolates two things that differ mechanically between 1099 and W-2 work — the self-employment tax drag and the value of employer-paid benefits — and deliberately leaves out federal and state income-tax brackets, standard vs. itemized deductions, and the Qualified Business Income (QBI) deduction some contractors can claim. Both arrangements owe income tax on their totals, so omitting it keeps the comparison focused on what actually differs between them, but it also means this is not a full picture of your after-tax take-home pay under either option.
Methodology & sources
The 1099 side follows IRS Schedule SE mechanics for self-employment tax: net profit (contract rate minus business expenses) × 92.35% is the taxable base, taxed at 12.4% for Social Security (capped at the annual wage base) plus 2.9% for Medicare (uncapped), summed and rounded to the cent — the same formula used by this site's Self-Employment Tax Calculator. If net profit is zero or negative, self-employment tax is clamped to zero. The W-2 side is simple addition: salary plus the stated value of employer-paid benefits. See the IRS's Self-Employment Tax (Social Security and Medicare Taxes) page for the underlying rules this calculator implements, including the current-year Social Security wage base.
This tool does not model income-tax brackets, state taxes, or the QBI deduction, and it is not personalized tax or financial advice — treat the result as a first-order comparison to sanity-check an offer, not a final answer. It covers US federal self-employment tax rules only and is not built for contractor-vs-employee comparisons in other countries.