Free W-2 vs 1099 Calculator

The difference between the two forms is who carries the employer half of the payroll tax. A W-2 salary has 7.65% withheld from the employee and a matching 7.65% paid by the employer, and the second half stays off the payslip entirely. Move the same work onto a 1099 and both halves land on one person, which is what self-employment tax is: 15.3% assessed on 92.35% of net earnings. The contractor picks up deductions an employee cannot take, so the useful question is how much extra gross covers the swap, and that is the question this comparison answers.

Say the salary is $120,000 and you enter 25% as the effective income tax rate. The W-2 side resolves to $30,000 of income tax and $9,180 of payroll tax, leaving $80,820. The contractor side keeps 60.9 cents in the dollar under the same assumption, since 25% of income tax and 14.13% of self-employment tax come off the top, so matching $80,820 takes $132,774 of gross. That figure is the break-even the tool prints, a markup of 10.6% on the salary. A contract rate set at parity with the salary is a pay cut of about $12,774 before a single expense is counted.

Two of those inputs are flatter than the tax code they stand in for. The 15.3% is charged on every dollar of net earnings here, when the 12.4% Social Security portion stops at the wage base the SSA set at $184,500 for 2026; only the 2.9% Medicare portion runs past it, with a further 0.9% on self-employment income above $200,000 for a single filer. On $250,000 of gross the tool books about $35,300 of self-employment tax where the graduated version comes to roughly $29,900. It also omits the deduction for half of that tax, and the optional benefits figure feeds the W-2 total while the break-even ignores it.