W-2 vs 1099 Calculator: Compare Employee and Contractor Pay for 2026
A $60-an-hour contract sounds like more money than an $85,000 salary — until you do the tax math. Independent contractors pay both halves of the payroll tax, buy their own health insurance, fund their own retirement, and get no paid time off. This free W-2 vs 1099 calculator lines both offers up side by side using projected 2026 federal rules, so you can see the real, after-tax difference and the break-even hourly rate a contractor must charge to come out even.
It works from either point of view. Workers weighing a job offer against freelancing can see their true take-home pay on each path. Employers deciding whether to hire a W-2 employee or engage a 1099 contractor can see the fully-loaded cost of each. Everything runs in your browser — nothing you type is stored or sent to a server.
W-2 vs 1099: What Is the Difference?
The terms come straight from the IRS forms. A W-2 is the wage statement an employer sends an employee; a 1099 (usually Form 1099-NEC) reports what a business paid an independent contractor. The label determines who carries the tax and benefit burden.
- W-2 employee: the employer withholds income tax, pays half of FICA (Federal Insurance Contributions Act payroll tax), and typically provides benefits like health insurance, a retirement match, and paid time off (PTO).
- 1099 contractor: receives the full contract amount with nothing withheld, then owes self-employment tax (SECA) plus income tax, and must fund every benefit personally. In exchange, the contractor can deduct legitimate business expenses and often qualifies for the QBI (Qualified Business Income) deduction.
That single classification decision moves thousands of dollars a year. The calculator quantifies exactly how much.
How the Tax Math Works (2026)
The biggest gap between the two paths is payroll tax. A W-2 employee pays 7.65% FICA — 6.2% Social Security on wages up to the 2026 wage base of $184,500, plus 1.45% Medicare on every dollar (with an extra 0.9% Additional Medicare tax once wages pass $200,000). The employer quietly pays a matching 7.65% you never see on your paystub.
A 1099 contractor pays 15.3% self-employment tax (SECA) — effectively both halves — on 92.35% of net business income (gross revenue minus expenses). The 12.4% Social Security portion still stops at the $184,500 cap, while the 2.9% Medicare portion has no ceiling. Two rules soften the blow: contractors deduct half of their SE tax from adjusted gross income (AGI), and most can take the 20% QBI deduction before income tax is figured.
On top of payroll tax, both paths owe federal income tax on their taxable income using the same progressive brackets and standard deduction. The calculator applies projected 2026 single or married-filing-jointly brackets, subtracts the standard deduction, and (for the contractor) the half-SE and QBI deductions, then totals the tax drag on each side.
Note: 2026 income-tax brackets and standard deductions in this tool are inflation estimates pending the final IRS figures. The Social Security wage base and Medicare thresholds follow the 2026 standards. Results exclude state and local tax.
The Break-Even 1099 Hourly Rate
The headline number this tool produces is the break-even 1099 rate: the hourly rate a contractor must charge to net the same total value as a given W-2 package, once you account for the doubled payroll tax, lost benefits, and unpaid time off. As a rule of thumb it lands 25%–40% above the equivalent salaried wage.
Here is the default scenario in the calculator. Take an $85,000 salary for a single filer, with $9,000 of employer health benefits, a $3,400 retirement match, and 15 days of PTO. After FICA and estimated federal income tax, that salary nets roughly $68,600 in cash, and the benefits push the total economic value to about $80,000.
To match that as a contractor with $8,000 of business expenses, you would need to net the same ~$80,000 after 15.3% self-employment tax and income tax. Working back from that target, the contractor needs roughly $120,000 of gross revenue — which, spread over a full-time schedule minus the same 15 days off, works out to about $57 to $60 an hour. That is a premium of roughly 40% over the salary's ~$41 hourly equivalent. In other words, a $60/hr contract is only just competitive with an $85,000 salaried job — not the windfall it first appears.
Change any input and the break-even rate updates instantly, so you can test a lower advance of benefits, higher expenses, or a married-filing-jointly bracket in seconds.
For Employers: The True Cost of a Hire
Switch the calculator to the "Hiring Employer" view and it flips the math around. Instead of take-home pay, it shows the fully-loaded annual cost of a W-2 employee — base salary plus the employer's 7.65% payroll tax, health benefits, and retirement match — versus the flat cost of a 1099 contract, where you pay only the agreed amount with no payroll tax or benefits attached.
That comparison tells you the equivalent 1099 rate you could pay a contractor for the same total outlay as a salaried hire. It is a fast sanity check when you are budgeting headcount or negotiating a contract. Just remember that cost is only one factor: misclassifying an employee as a contractor to save on payroll tax and benefits can trigger back taxes, penalties, and wage claims from the IRS and the Department of Labor.
Which Should You Choose?
There is no universally better answer — only a better fit for your numbers and goals. Contractor income can win when the rate is high enough to clear the break-even premium, business expenses are meaningful, and you value autonomy and the QBI deduction. Employee status can win when you need stable pay, subsidized health insurance, an employer retirement match, unemployment eligibility, and paid time off.
Use the calculator to put a real dollar figure on the trade-off, then pair it with the self-employment tax and other tools linked below. And because worker classification carries legal weight, confirm any decision with a CPA or enrolled agent before you sign.
This tool provides estimates for planning purposes only and is not tax or legal advice.