1099 vs W-2 Calculator 2026

How to use the 1099 vs W-2 calculator

Start with the employee offer and the contractor offer for the same kind of work. Annual mode takes an employee salary and gross contract revenue. Hourly mode converts the employee rate using 52 paid weeks and the contractor rate using your billable weeks. Enter business expenses separately from revenue so that an invoice total is not mistaken for spendable profit.

The result has two jobs: compare the offers you entered, and calculate the contract revenue needed to match the employee offer. The hourly equivalent divides that required revenue by billable hours. Lower billable weeks raise the required hourly rate even when the annual tax bill is unchanged. Use realistic paid and billable time before negotiating a rate.

• Salary: use cash wages before tax. Keep the separately entered benefits value out of the salary field.
• Contract revenue: include all payments for work before subtracting eligible business expenses.
• Expenses: include costs of doing the contract work; the benefits field is handled separately.
• Benefits: enter your estimate of their annual after-tax economic value, such as health coverage and employer retirement contributions. The tool adds that value to the employee comparison target.
• Billable time: remove unpaid vacation, gaps between contracts and time you cannot invoice. In hourly mode, use no more than 40 hours because this comparison does not price overtime.

Worked example: $80,000 W-2 salary versus $100,000 contract revenue

Assume a single filer in 2026, federal taxes only, a standard deduction, no dependents, $5,000 of contractor expenses and $10,000 of employee benefits value. At 40 billable hours for 48 weeks, the contractor can invoice 1,920 hours. These assumptions describe one offer comparison; change them to match your offers.

The employee keeps $65,110 in cash. Including the entered benefits, the comparison target is $75,110. The contractor needs approximately $106,307 of annual revenue, or $55.37 per billable hour, to reach that target in this model.

Why the same gross income gives different take-home pay

An employee pays 6.2% Social Security and 1.4500000000000002% regular Medicare on covered wages. A sole proprietor generally pays both shares through self-employment tax, applying the calculation to 92.35% of net profit. The federal income tax calculation also deducts half of regular SE tax.

This creates two different tax bases. Employee wages are the starting point for wage taxes, while the contractor starts with revenue less deductible business expenses. Comparing invoice revenue directly with salary skips both operating costs and the different payroll tax treatment. The table separates those amounts so you can see where the difference comes from.

Benefits, paid vacation and costs: avoid counting them twice

Consider a job with four weeks of paid vacation. Hourly W-2 mode already assumes 52 paid weeks, while 48 contractor billable weeks removes those four weeks from invoicing. Adding another four weeks of salary as a benefits value would repeat the same adjustment. The annual contract rate changes because fewer hours must generate the annual revenue target.

The benefits field is a comparison adjustment, not a deduction on a tax return. If you value employer health coverage at $8,000 after tax, entering $8,000 means the contractor must generate $8,000 more spendable cash after the modeled taxes. It does not claim a self-employed health insurance deduction. Entering the same replacement cost again as a business expense would distort the comparison.

Use the contractor expenses field for costs attached to that work, such as software, supplies or professional fees. Do not treat every personal purchase as a business cost. IRS business expense resources explain the documentation and eligibility rules; this calculator accepts a total you have already identified as deductible.

California, South Carolina and other state comparisons

Select California (CA), South Carolina (SC) or another state in the calculator to include the existing state income tax model. Employee payroll contributions appear on the employee side where the state data includes them. The contractor side excludes employee-only contributions and uses profit for its income tax estimate.

The selected state is an assumption that both offers are taxed in that state. Cross-state commuting, residency changes, city taxes and reciprocity agreements require additional analysis. A New York selection does not include New York City income tax here. State-specific deductions for half of SE tax are also excluded, so state estimates can differ from the return.

Why this is a worker pay comparison, not an employer hiring-cost tool

The equivalent rate answers what a worker needs to receive. An employer hiring-cost comparison would add employer Social Security and Medicare, federal and state unemployment taxes, insurance and the employer’s actual benefit spending. Those are different inputs from the after-tax benefits value entered here. Do not use the employee take-home column as an employer payroll budget.

Nor does a favorable rate make someone a contractor. IRS classification considers behavioral control, financial control and the relationship between the parties. The contract title or whether a payment is reported on a 1099 is not enough to determine status. Form SS-8 is available when a federal worker-status determination is needed.

Calculation scope and deductions to check before accepting an offer

The comparison uses ordinary federal income tax brackets and the standard deduction, employee FICA or regular SE tax, Additional Medicare where applicable, and the selected state model. It assumes one worker without other household income or dependents. Required contractor revenue is solved from after-tax cash, rather than by adding a fixed percentage to the salary.

QBI, self-employed retirement and health deductions, itemized deductions, dependent credits, local taxes and employee benefit deductions are excluded. Eligible QBI can reduce income tax without reducing SE tax, but eligibility and limitations depend on the return. Business losses are not offset against wages here. A personal tax projection should include those items before you make a final compensation decision.