The usual advice is that a contractor needs to earn well above an employee’s salary, and the 15.3% self-employment tax gets blamed for it. On federal tax alone, the real gap is much smaller. For a single filer with no other income, a $75,000 W-2 salary and $77,712 of 1099 income leave the same pay after federal income tax and Social Security and Medicare tax. That’s 3.6% more, not 15%. Where a contractor really loses ground is everything an employer provides without a line on the paycheck, like health insurance, a retirement match and paid days off.
This guide shows the tax-only gap from $50,000 to $200,000, explains why it’s so small, and then adds the pieces that usually matter more. The figures come from the same functions as our Freelance Tax Calculator, and our 1099 vs. W-2 calculator lets you rerun your own offer with your benefits, state and hours.
How much more you need, before benefits
We took a W-2 salary, subtracted federal income tax and the employee’s share of Social Security and Medicare tax, and then found the 1099 income that leaves the same amount after federal income tax, self-employment tax and the QBI deduction. No expenses, no benefits, no state tax.
| W-2 salary | W-2 pay after federal tax and FICA | 1099 income needed | Extra | Extra, % |
|---|---|---|---|---|
| $50,000 | $42,355 | $52,712 | $2,712 | 5.4% |
| $75,000 | $61,592 | $77,712 | $2,712 | 3.6% |
| $100,000 | $79,180 | $102,222 | $2,222 | 2.2% |
| $150,000 | $113,791 | $152,011 | $2,011 | 1.3% |
| $200,000 | $148,927 | $203,008 | $3,008 | 1.5% |
$50,000
- W-2 pay after federal tax and FICA
- $42,355
- 1099 income needed
- $52,712
- Extra
- $2,712
- Extra, %
- 5.4%
$75,000
- W-2 pay after federal tax and FICA
- $61,592
- 1099 income needed
- $77,712
- Extra
- $2,712
- Extra, %
- 3.6%
$100,000
- W-2 pay after federal tax and FICA
- $79,180
- 1099 income needed
- $102,222
- Extra
- $2,222
- Extra, %
- 2.2%
$150,000
- W-2 pay after federal tax and FICA
- $113,791
- 1099 income needed
- $152,011
- Extra
- $2,011
- Extra, %
- 1.3%
$200,000
- W-2 pay after federal tax and FICA
- $148,927
- 1099 income needed
- $203,008
- Extra
- $3,008
- Extra, %
- 1.5%
Single filer, no other income, standard deduction, 2026 federal rates. W-2 side: federal income tax plus 6.2% Social Security up to $184,500 and 1.45% Medicare, plus 0.9% Additional Medicare Tax above $200,000. 1099 side: self-employment tax, half of it deducted, and the QBI deduction. Taxable income stays below $201,750 in every row, where the QBI wage and business-type limits don't apply. No state tax, expenses or pre-tax payroll deductions.
Why the gap is so small
Take the $75,000 row. The table below shows what each side pays, line by line.
| W-2 employee | 1099 contractor | |
|---|---|---|
| Gross pay | $75,000 | $77,712 |
| Social Security and Medicare tax | $5,738 | $10,980 |
| Deduction for half of self-employment tax | n/a | $5,490 |
| Standard deduction | $16,100 | $16,100 |
| QBI deduction | n/a | $11,224 |
| Taxable income | $58,900 | $44,898 |
| Federal income tax | $7,670 | $5,140 |
| Pay after federal tax and payroll tax | $61,592 | $61,592 |
Gross pay
- W-2 employee
- $75,000
- 1099 contractor
- $77,712
Social Security and Medicare tax
- W-2 employee
- $5,738
- 1099 contractor
- $10,980
Deduction for half of self-employment tax
- W-2 employee
- n/a
- 1099 contractor
- $5,490
Standard deduction
- W-2 employee
- $16,100
- 1099 contractor
- $16,100
QBI deduction
- W-2 employee
- n/a
- 1099 contractor
- $11,224
Taxable income
- W-2 employee
- $58,900
- 1099 contractor
- $44,898
Federal income tax
- W-2 employee
- $7,670
- 1099 contractor
- $5,140
Pay after federal tax and payroll tax
- W-2 employee
- $61,592
- 1099 contractor
- $61,592
The $77,712 is the 1099 income that gives the same final line as the $75,000 salary. Social Security and Medicare tax: employee share on wages; self-employment tax on 92.35% of net profit at 15.3% for the contractor.
The contractor pays $5,242 more in payroll tax, because they carry both halves, but pays $2,530 less in income tax. Two deductions do that. Half of the self-employment tax comes off income, which the IRS says wage earners cannot do with their Social Security and Medicare tax, and the QBI deduction takes up to 20% off the business income before the rates apply. Both are in our self-employment tax guide and our QBI guide. The QBI deduction is only available for business income, never for wages. That’s why a contractor at $75,000 isn’t hit anywhere near 15.3%.
The gap narrows as pay rises through $150,000 in our runs, from 5.4% at $50,000 to 1.3%, and is 1.5% at $200,000. We didn’t test above that.
What the client saves
The client pays something too. For an employee, the IRS says the employer matches the Social Security and Medicare tax and also pays unemployment tax, and that businesses generally don’t have to withhold or pay any taxes on payments to independent contractors. Counting only the employer’s matching payroll tax, an employee paid $75,000 costs the client $80,738. The $77,712 contractor costs $3,026 less, and that’s before unemployment tax and any benefits. It’s a reasonable point to raise when you negotiate a rate, and it’s why you can ask for more than the tax-only number and still be a fair price.
What the number leaves out
The table is the tax-only floor. These are the items that decide the real number, and none of them is in the table above.
- Health insurance. If the job pays for it and you’d now buy your own, that’s a cash cost. The premium is deductible for a self-employed person, which our self-employed health insurance deduction guide explains.
- A retirement match. A contractor can open a Solo 401(k) or a SEP IRA, but the employer contribution you’d lose is real money. Our Solo 401(k) vs. SEP IRA guide shows how much you can contribute to replace it.
- Paid time off and holidays. An employee is paid for them. A contractor is paid for the hours they bill.
- Business costs. Equipment, software, insurance and fees. They’re deductible, which lowers the tax, but they still cost cash. The Schedule C deductions guide goes line by line.
- State tax, which we left out on purpose.
- Gaps between clients, and the cash-flow work of paying estimated taxes and setting money aside.
Adding one benefit: health insurance
To see how much a single benefit moves the answer, we added an assumption: the employee’s job pays a $6,000 health insurance premium, and the contractor has to pay the same premium out of pocket and deducts it as self-employed health insurance. The $6,000 is an assumption for the example, not an average, so use your own premium.
| Tax only | With $6,000 premium | |
|---|---|---|
| 1099 income needed | $77,712 | $84,761 |
| Self-employment tax | $10,980 | $11,976 |
| Federal income tax | $5,140 | $5,193 |
| Extra over the $75,000 salary | 3.6% | 13.0% |
1099 income needed
- Tax only
- $77,712
- With $6,000 premium
- $84,761
Self-employment tax
- Tax only
- $10,980
- With $6,000 premium
- $11,976
Federal income tax
- Tax only
- $5,140
- With $6,000 premium
- $5,193
Extra over the $75,000 salary
- Tax only
- 3.6%
- With $6,000 premium
- 13.0%
Same assumptions as the first table. The contractor's pay after federal tax and the premium is $61,592 in both columns, the same as the employee's pay after federal tax and FICA. The premium is an assumption for the example.
One benefit takes the gap from 3.6% to 13.0%. A retirement match or paid time off would push it higher again. This is why we say the tax is the small part of the comparison.
Turning it into an hourly rate
Employees are paid for 2,080 hours a year, 40 hours for 52 weeks, whether or not they work every one of them. A contractor is paid only for hours billed. At a $75,000 salary the employee’s rate is $36.06 an hour. The 1099 hourly rate that matches it depends on how many hours you can bill:
| Billable hours a year | Tax only | With $6,000 premium |
|---|---|---|
| 2,080 | $37.36 | $40.75 |
| 1,800 | $43.17 | $47.09 |
| 1,600 | $48.57 | $52.98 |
2,080
- Tax only
- $37.36
- With $6,000 premium
- $40.75
1,800
- Tax only
- $43.17
- With $6,000 premium
- $47.09
1,600
- Tax only
- $48.57
- With $6,000 premium
- $52.98
$77,712 and $84,761 divided by the billable hours. 2,080 is 40 hours for 52 weeks; 1,800 and 1,600 are scenarios, not averages. The employee's equivalent is $75,000 ÷ 2,080 = $36.06 an hour.
Hours are the item most people underestimate. If you spend a day a week finding work or doing paperwork, 1,600 billable hours isn’t pessimistic. If you already know the take-home pay you want, the freelance hourly rate calculator starts there and works out the hourly rate to charge.
You don’t always get to choose
Whether you’re a contractor or an employee isn’t up to the two sides to agree on. The IRS says the business has to weigh the degree of control and independence across three categories, behavioral, financial and the type of relationship, and no single factor decides it. If it’s unclear, the business or the worker can file Form SS-8, and the IRS will review the facts and determine the status. If you’re being paid on a 1099 but work set hours, with the company’s equipment and under its direction, it’s worth asking whether that’s right. For what the forms look like, see 1099-NEC vs. 1099-K.
Run your own offer
- Take the W-2 offer’s pay after federal income tax, Social Security and Medicare tax. Your most recent pay stub is the quickest source.
- Enter the salary, your state and any health insurance premium in the 1099 vs. W-2 calculator. It finds the 1099 income that matches. To check a figure of your own, use the Freelance Tax Calculator.
- Add the value of what you’d give up: match, paid time off, and any other benefit.
- Divide by the hours you can bill for an hourly rate.
- Check the self-employment tax calculator for the payroll tax part. The first-year filing guide covers what changes on your return.
How we got these figures
The Social Security and Medicare rates, the $184,500 wage base and the Additional Medicare Tax rule come from IRS Topic no. 751, and the 92.35% base, the deduction for half of the tax and the 15.3% rate from IRS Topic no. 554 and the IRS self-employment tax page. The QBI deduction comes from the IRS page on it, the 2026 standard deduction and tax rates from the 2026 Form 1040-ES, and the $201,750 threshold from Rev. Proc. 2025-32. The employer’s matching tax, unemployment tax and the rule for contractors come from the IRS page on independent contractors, and the three categories and Form SS-8 from that page and Topic no. 762. We opened all of these on October 11, 2026. The tables are our own arithmetic, run through the same functions as our freelance tax calculator, once for each salary: the 1099 income is the lowest whole dollar that leaves at least the W-2 pay. The health premium and the 1,800 and 1,600 hour scenarios are assumptions for the example. For how we choose and check sources, see How We Research.
This is general information, not tax or financial advice for your situation. How a worker is classified depends on the facts, and a tax professional can check yours before you decide.
