A 1099 offer has to pay noticeably more than a W-2 salary just to break even — because the contractor pays both halves of Social Security and Medicare, funds their own health insurance and retirement match, and only bills for the weeks they actually work. This calculator runs both offers through the same 2026 tax engine and compares them on total value, then solves for the contract rate that makes them tie.
Why the contract number has to be bigger
Put an $80,000 salary next to a $55/hr contract and the contract looks like the obvious win — at 40 hours a week it annualizes to six figures. But the two numbers aren't measuring the same thing. The salary arrives with a support structure the hourly rate has to replace out of its own pocket.
Start with payroll tax. An employee pays 7.65% of wages toward Social Security and Medicare, and the employer matches it invisibly. A contractor is both parties: the full 15.3% comes out of the contract gross (on 92.35% of net earnings, with Social Security capped at the 2026 wage base of $184,500). That single line is worth roughly 7 points of the gap.
Then benefits. Employer-paid health insurance routinely runs $6,000 a year or more for single coverage, and a 401(k) match of 4% on an $80,000 salary is another $3,200 — money that never appears in the salary figure but is unambiguously part of the offer. As a contractor you fund both yourself, at retail prices.
Finally, time. The salary is paid for 52 weeks whether you work them or not. The contract pays only for billable weeks — take four weeks of vacation and holidays and you're billing 48. A rate that looks generous over 52 weeks gets noticeably thinner over 48.
How this calculator works
Both sides run through the identical 2026 tax engine as our Self-Employment Tax Estimator — same brackets, same standard deduction ($16,100 single / $32,200 joint / $24,150 head of household), same $184,500 Social Security wage base — so the comparison never disagrees with the tax estimates elsewhere on this site.
- W-2 side: your FICA share (6.2% Social Security up to the wage base + 1.45% Medicare, plus the 0.9% additional Medicare tax above $200,000 single / $250,000 joint / $200,000 head of household), then federal income tax on salary minus the standard deduction. Your employer's matching FICA and benefits never touch your cash — they enter through the total-value row at the bottom, where they belong.
- 1099 side: contract gross minus business expenses gives net earnings. Self-employment tax follows the IRS sequence (15.3% on 92.35%, Social Security capped). Half the SE tax, your self-paid health premium, and your own retirement contributions come off income; then the simplified QBI deduction — 20% of net contract income, capped at 20% of taxable income before the deduction, when you're below the 2026 thresholds ($201,750 single/head of household, $403,500 joint); above them this simplified model drops the deduction entirely, where the real rules phase it out gradually — then federal brackets.
- State tax: the flat rate you enter — applied to salary minus the standard deduction on the W-2 side, and on the 1099 side to net contract income minus half the SE tax, the same base the site's other self-employment tools use. It's labelled an approximation because real state systems have their own brackets, deductions, and treatment of contract income.
- Break-even solve: taxes are nonlinear, so there's no tidy formula for the tying rate. The calculator bisects — it tests contract rates above and below the answer until the 1099 total value matches the W-2 total value to the nearest $0.25/hr.
One deliberate omission, because it's a common competitor error: paid time off is not added as cash on the W-2 side. The salary is paid in full either way, so adding a "PTO value" would count the same dollars twice. The contractor's unpaid weeks are the genuine difference, and they're handled where they actually bite — in the billable-weeks math that shrinks the contract gross.
Worked example
Alex has two live offers. The staff job pays $80,000, with employer-paid health coverage worth $6,000/yr, a 4% 401(k) match, and no other benefits. The contract pays $55/hr at 40 billable hours a week; Alex takes 4 unpaid weeks a year, so the contract gross is $55 × 40 × 48 = $105,600. Against that go $3,000 of business expenses and a $6,000/yr health premium Alex would buy alone. Alex files single and compares federal taxes only.
The calculator is pre-filled with exactly this case — the table above is Alex's answer. Walk it top to bottom and three lines do most of the damage to the contract's apparent lead: the self-employment tax line (both halves, remember), the health premium Alex now funds personally, and the employer-benefits row, where the W-2 side quietly adds back $9,200 of value ($6,000 of health coverage plus a $3,200 match) that never appeared in the salary figure. Then look at the break-even block: it tells Alex the exact hourly rate at which the contract would merely tie the staff job — the number to carry into any negotiation.
Run the numbers and the contract wins — barely. The 1099 side pays $14,496.92 of self-employment tax and, after a QBI deduction of $14,650.31, $7,604.27 of federal income tax, landing at a total value of $74,498.81 against the staff job's $74,310.00 — ahead by $189 a year, about $16 a month. The break-even rate is $54.75/hr, a 1.42× multiple, so the $55 offer clears the tie point by twenty-five cents an hour. One fewer billable week flips the answer — which is why the contract's apparent $25,600 gross lead was never the real story.
Reading the break-even multiple
The multiple compresses the whole comparison into one portable number: the break-even contract rate divided by the salary's hourly equivalent (salary ÷ 2,080 hours). For benefit-rich staff jobs it typically lands between about 1.2× and 1.45×. That gives you a fast field test for any future offer — multiply the salary's hourly equivalent by your multiple and you have the floor a contract has to clear before it's even arguably better. Below the floor, the "higher-paying" contract is paying you less; the premium above the floor is what compensates you for contract risk: gaps between engagements, no unemployment insurance, and income that stops the day the work does.
If the contract wins: the set-aside habit
Winning the comparison is only half the discipline. Contract income arrives with nothing withheld, so the calculator also reports your total 1099 tax as a percentage of gross — the share of every invoice to move into a separate account the day it lands — and splits it into the four quarterly estimated payments with their 2026 due dates (April 15, June 15, September 15, 2026, and January 15, 2027). For the full payment schedule on a known income, use the Quarterly Estimated Tax Calculator.