| Item | W2 Employee | 1099 Contractor |
|---|
1099 contractor vs W-2 employee: how to compare offers
A W-2 employee's employer pays half of payroll taxes and usually provides benefits; a 1099 contractor pays the full 15.3% self-employment tax and buys their own benefits. To break even, a contractor rate usually needs to be 25-40% higher than the equivalent salary.
Formula
Contractor net = 1099 income - SE tax - Income tax - Benefits you buy - Business expenses Employee net = Salary - Employee FICA (7.65%) - Income tax, plus the value of employer benefits
Example
A $100,000 salary with health insurance and a 401(k) match can be worth more than a $115,000 1099 contract once self-employment tax and self-paid insurance are included.
Frequently asked questions
Is it better to be 1099 or W-2?
W-2 gives stability, employer-paid payroll tax and benefits. 1099 gives flexibility and business deductions, but you pay the full 15.3% SE tax. Compare total net income, not headline pay.
How much more should a 1099 contractor charge?
Typically 25-40% more than the equivalent W-2 hourly wage to cover SE tax, benefits, unpaid time off and business costs.
Can 1099 contractors deduct expenses?
Yes. Ordinary and necessary business expenses reduce taxable profit, and half of SE tax is deductible. Some may also qualify for the QBI deduction.