Find the Right Financial Setup
Whether you're going 1099 or staying W-2, get your finances and taxes structured properly.
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Find vetted contractors or streamline your full-time hiring process.
W-2 vs 1099: What's the Difference?
A W-2 employee has taxes withheld by their employer, receives benefits, and is covered by labor laws. A 1099 contractor is self-employed — they invoice for services, pay all their own taxes, and receive no employer benefits.
The key financial difference: contractors pay the full 15.3% self-employment tax (Social Security + Medicare), while employees split it 50/50 with their employer. That alone makes a 1099 rate worth ~7.65% less than the equivalent W-2 salary.
The Self-Employment Tax Hit
This is the most underestimated cost of going 1099. As a contractor you pay:
- 15.3% SE tax on net earnings up to $168,600 (2026)
- 2.9% Medicare tax on everything above that
- You can deduct half of SE tax from your income, softening the blow
- Net result: roughly 7.65% more tax than a W-2 employee at the same income level
Quick Rate Multiplier Guide
As a rule of thumb, a 1099 rate needs to be significantly higher than a W-2 salary to be equivalent. Here's a rough guide:
| To Match This W-2 Salary | You Need ~This 1099 Rate | Why |
|---|---|---|
| $80,000 | $105,000–$115,000 | SE tax + benefits gap |
| $100,000 | $130,000–$145,000 | SE tax + benefits gap |
| $120,000 | $155,000–$175,000 | SE tax + benefits gap |
| $150,000 | $190,000–$215,000 | SE tax + benefits gap |
True Cost of an Employee vs. Contractor
For employers, a full-time employee typically costs 1.25–1.4× their base salary when you factor in payroll taxes, benefits, equipment, and recruiting. A contractor usually costs more per hour but eliminates most overhead — making them cost-effective for shorter engagements or specialized skills.
IRS Worker Classification Rules
Misclassifying an employee as a contractor is a serious legal risk. The IRS uses a three-factor test: behavioral control, financial control, and the type of relationship. Key signs that someone should be classified as an employee:
- You control when, where, and how they work
- You provide tools and equipment
- The relationship is ongoing and exclusive
- They perform a core business function
When in doubt, file Form SS-8 with the IRS for a determination, or consult a labor attorney.
How This Calculator Works
The Worker Calculator compares net take-home value after accounting for self-employment tax, benefits, business expenses, and unpaid time. The Employer Calculator compares true annual hiring cost including all overhead. Both show a break-even analysis so you can make an apples-to-apples comparison.