W-2 vs 1099 Calculator

How it works

An employee and a contractor with the same gross pay are not paid the same. The employer pays half of Social Security and Medicare (7.65% of salary, matching the employee's 7.65%), pays for benefits, and pays salary for holidays and vacation. A contractor pays self-employment tax of 15.3% on 92.35% of net profit (12.4% Social Security up to the wage base, $184,500 in 2026, plus 2.9% Medicare), buys their own benefits, pays their own expenses and is paid only for hours billed.

The calculator finds the contract rate that leaves you with the same money after payroll taxes as the salary plus the benefits it comes with. It takes the salary less the employee's Social Security and Medicare, adds the value of the employer's benefits, and solves for the net profit that leaves that much after self-employment tax. It then adds business expenses and divides by billable hours: your weekly hours over 52 weeks less the paid days off the job gives, which a contractor takes unpaid.

The other direction runs the same steps backwards: the contract rate times billable hours, less expenses, less self-employment tax and the benefits you would have to buy, is converted to the salary that leaves the same amount after the employee's payroll tax.

As a rule of thumb this lands close to the employer's cost per billable hour: (salary + benefits + 7.65% employer payroll tax + expenses) ÷ billable hours, with the paid-time-off value carried by dividing over fewer hours. The calculator's result usually differs slightly, because benefits replaced by cash are subject to self-employment tax, while expenses are deductible and are not.

Formula

billable hours  = hours per week × (52 − paid days off ÷ 5)
employee FICA   = 6.2% × min(salary, wage base) + 1.45% × salary
target          = salary − employee FICA + benefits
SE tax(P)       = 12.4% × min(92.35% × P, wage base) + 2.9% × 92.35% × P   (0 if 92.35% × P < $400)
net profit P    : P − SE tax(P) = target   (under the wage base: P = target ÷ (1 − 0.9235 × 0.153))
contract rate   = (P + expenses) ÷ billable hours
PTO value       = salary × paid days off ÷ 260

Example

A $100,000 salary in 2026 with $15,000 of employer benefits, 20 paid days off, 40-hour weeks and $2,000 of contractor expenses: the employee's Social Security and Medicare are $7,650, so the target is $100,000 − $7,650 + $15,000 = $107,350.

The net profit that keeps $107,350 after self-employment tax is $107,350 ÷ (1 − 0.9235 × 0.153) = $125,013.90, with $17,663.90 of self-employment tax. Adding $2,000 of expenses gives $127,013.90 of revenue over 40 × (52 − 4) = 1,920 billable hours: $66.15 an hour.

The salary works out to $48.08 per paid hour (2,080 hours), so the contract rate needs to be about 37.6% higher. The 20 paid days off alone are worth $7,692.31 of the salary.

Assumptions and limitations

• This is an estimate for planning. It is for informational and educational purposes and is not financial, tax or legal advice.
• Income tax is left out on both sides. A contractor deducts half of self-employment tax and may qualify for the 20% qualified business income deduction, and an employee may have pre-tax benefits; either can shift the after-tax comparison by a few percent.
• The 0.9% Additional Medicare tax over $200,000 ($250,000 joint) applies to wages and self-employment income alike and is left out of both.
• Benefits, paid days off and expenses are figures you enter; the defaults are examples, not typical values for any job. Unemployment insurance, workers' compensation and employer retirement plan access are not valued.
• Billable hours assume every working hour outside paid days off is billed. Contractors usually also have unbilled time for sales and administration and gaps between contracts; lower the hours per week to allow for it.
• Social Security wage base and payroll tax rates are the IRS figures for 2025 and 2026 (Publication 15; Schedule SE).
• Whether a worker is an employee or an independent contractor is set by the IRS common-law rules, not by choice; this calculator only compares pay.

Frequently asked questions