This calculator solves for the contractor hourly rate that leaves you no worse off than a salary. It offers two separate models, because they answer different questions: SPENDABLE CASH, which is what reaches your bank account and is the right model for negotiating a rate, and TOTAL ECONOMIC VALUE, which adds the benefits an employer provides free. Each side's rows are itemised on screen and shown to sum to its own headline.
What this includes
Employer payroll-tax burden: FICA, federal unemployment and state unemployment
Contractor self-employment tax and the 0.9% Additional Medicare Tax
The cost of replacing employer health cover — and, in the value model, the cover it buys
The employer retirement contribution a contractor does not receive
Your own pre-tax benefit deductions, treated as a § 125 cafeteria plan
Deductible business expenses, and the section 199A deduction a W-2 employee cannot take
Billable weeks and hours, which convert revenue into an hourly rate
State income tax on both sides when a state is selected
Workers' compensation and unemployment cover — in the value model only
What it excludes
The risk of gaps between contracts, and unpaid time spent finding the next one
Unvested equity or an employer contribution forfeited by leaving
Whether the work legally qualifies as contracting — misclassification is a separate question
State and local business licences, gross-receipts taxes and entity fees
Employer benefits in the spendable-cash model — they are value, not cash
The 2026 rule most people get wrong: a benefit gap must not be counted twice. If you add the employer's health contribution to the salary side AND subtract the contractor's replacement premium from theirs, without crediting the contractor with the cover they just bought, you charge the same gap to both sides. That single error overstated the break-even rate on this page by more than $8 an hour before it was corrected. The second trap is paid time off: a salary already pays for holidays, so adding a separate "PTO value" double-counts it — unpaid time hurts a contractor through BILLABLE WEEKS instead, which is why 46 billable weeks needs a higher rate than 52 for the same annual revenue. And the employer also pays $7.65 of FICA per $100 of wage, up to $42 of federal unemployment tax, and state unemployment on top.
2026 tax inputs and methodology reviewed by Deepak Middha, Chartered Accountant · Passed the Series 65 examination · Methodology · Editorial standards · Methodology reviewed
Which comparison?
Employer-paid benefits do not appear: they are not cash. The contractor subtracts what they actually pay to replace them. This is the model to use when negotiating a rate.
The salaried job
Gross annual salary
$
The number on the offer letter
Filing status
State
Your own pre-tax benefit deductions
$
Your share of premiums and FSA contributions. Treated as a § 125 cafeteria plan, so it reduces taxable wages and FICA wages.
What the employer pays on top
These are excluded from the spendable-cash comparison — they are not money you can spend. Switch to total economic value to include them.
Employer share of health premiums
$
Employer retirement contribution
$
Dental, vision, life, disability
$
Paid time off, valued separately
$
Defaults to $0 on purpose: a salary already pays for holidays, and the contractor's unpaid time is already captured by billable weeks below. A figure here counts it twice.
The contract
Business expenses
$
Equipment, software, insurance, licences — deductible, and they cut SE tax too
Health cover bought yourself
$
What equivalent cover costs on the open market
Other replacement costs
$
Disability and life cover you now buy yourself
Your own retirement contribution
$
Deductible, so it cuts tax. It is a transfer into savings rather than a cost, so it is not subtracted from spendable cash.
Billable weeks a year
wk
52 minus holidays, sick days and gaps between contracts
Billable hours a week
hr
Hours you actually invoice, not hours worked
46 × 40 = 1,840 billable hours. A salaried year is 2,080 paid hours. Every hour of the gap is time you are not paid for.
Break-even rate · spendable cash
$63.29/hr
Below this the contract leaves you worse off than the $100,000 salary. It is $116,461 of gross revenue — 1.16× the salary — over 1,840 billable hours.
Under the other model it is $65.35/hr. The gap between them is exactly the employer-provided benefits that are not cash.
Salary over the same hours
$54.35/hr
Employer's cost to employ you
$119,097
Federal only. no state selected. State income tax is excluded from both sides. Because a contractor's deductions and the employee's wages are taxed differently by many states, adding a state can move the break-even rate in either direction.
Every row, both sides
W-2 employee
Gross salary+$100,000
Pre-tax benefit deductions−$2,400
Federal income tax−$12,642
Employee payroll tax (FICA)−$7,466
Spendable cash$77,492
rows sum to $77491.60 — reconciles
1099 contractor at $63.29/hr
Gross contract revenue+$116,461
Business expenses−$6,000
Federal income tax−$8,362
Self-employment tax−$15,608
Health cover bought yourself−$9,000
Spendable cash$77,492
rows sum to $77491.60 — reconciles
The contractor's section 199A deduction of $15,512 is inside the federal income tax line — a deduction a W-2 employee cannot take at all.
Rates around your break-even
Rate
Gross revenue
Your position
vs salary
$50.00
$92,000
$59,833
−$17,658
$55.00
$101,200
$66,883
−$10,609
$60.00
$110,400
$73,278
−$4,214
$63.29 ←
$116,461
$77,492
+$0
$65.00
$119,600
$79,673
+$2,182
$70.00
$128,800
$86,069
+$8,577
$75.00
$138,000
$92,464
+$14,972
$80.00
$147,200
$98,859
+$21,368
Each row prices the same contract at a different hourly rate, over the billable weeks and hours entered. Where the difference turns positive, contracting pays better under the selected model.
Assumptions
Workers' compensation cover and unemployment eligibility are modelled in the total-economic-value view only, and are valued at what the employer pays for them — federal and state unemployment tax plus any workers' compensation premium. That is a floor on what they are worth, not an estimate of it: the value to someone actually injured or laid off is far higher. They do not appear in the spendable-cash view at all, because they are not cash.
Paid time off is not added to the salary side by default, because a salary already pays for it and the contractor's unpaid time is captured by billable weeks.
Your own benefit deductions are treated as pre-tax under a § 125 cafeteria plan, so they reduce taxable wages and FICA wages.
The risk of gaps between contracts, unvested equity, and worker-classification risk are all excluded.
No state or local business licence, gross-receipts tax or entity fee is included on the contracting side.
Worked example: is $50 an hour better than an $80,000 salary?
Take the common version of this question. The salary is $80,000, with $7,200 of employer-paid health premiums, a $2,400 employer retirement contribution and $1,200 of other benefits. The contract would run 46 billable weeks at 40 hours, with $5,000 of equipment and software and $9,000 to buy equivalent health cover. Federal tax only, single filer.
On spendable cash — money reaching the bank account — the employee keeps $65,110 after tax. To match that, the contract has to produce $97,857 of gross revenue, because the contractor must also cover $9,000 of health premiums and $5,000 of equipment out of it. Over 1,840 billable hours that is $53.18 an hour.
On total economic value — adding the $11,031 of benefits the employer provides free, and crediting the contractor with the cover their premium actually buys — the break-even rises to $54.66 an hour. The $1.48between the two models is precisely the free part of the employee's package.
Either way, $50 an hour is not better. At $50 the contract produces $92,000 of revenue and leaves $60,603 of spendable cash — $4,507 short of the salary. The salary works out at $43.48 an hour over the same billable hours, so the break-even is 1.22× the salary in revenue terms. That multiple — not a flat “add 30%” — is what the arithmetic produces, and it moves with your state, your expenses and how many weeks you can really bill.
Why a contract rate has to be higher than the salary it replaces
Five separate things push the number up, and they compound rather than add. Employer payroll tax: a W-2 employer pays 6.2% Social Security and 1.45% Medicare on your wage, plus federal and state unemployment tax. A contractor pays both halves themselves through self-employment tax. Benefits: health premiums, the retirement match and everything else stop the day the W-2 does. Unpaid time: holidays, sick days and gaps between contracts are billable weeks you do not have.
Equipment and overheads move from the employer's balance sheet to yours. And protection disappears: no workers' compensation cover if you are hurt working, and no unemployment insurance if the work stops. Workers' compensation cover and unemployment eligibility are modelled in the total-economic-value view only, and are valued at what the employer pays for them — federal and state unemployment tax plus any workers' compensation premium. That is a floor on what they are worth, not an estimate of it: the value to someone actually injured or laid off is far higher. They do not appear in the spendable-cash view at all, because they are not cash.
Pushing the other way, and usually understated: a contractor deducts real business expenses that a W-2 employee cannot deduct at all, and takes the section 199A deduction of up to 20% of qualified business income. In the example above that deduction is worth thousands of dollars, and leaving it out of a comparison overstates the case for staying employed.
How the W-2 vs 1099 Calculator works for tax year 2026, what it leaves out, and the official material behind its figures. Reviewed by Deepak Middha, Chartered Accountant · Data, formulas and sources last re-verified .
What this calculator estimates
After-tax income under a W-2 salary and under equivalent 1099 income
The employer-side Social Security and Medicare a contractor absorbs
The QBI deduction available to self-employment income but not to wages
The contract rate that would leave you in the same after-tax position
What it does not calculate
Whether you are correctly classified as an employee or a contractor
The value of benefits, insurance, or paid leave beyond amounts you enter
State-level differences between employment and contracting
Unemployment insurance or workers' compensation
Formula summary
W-2 path: gross wages − pre-tax deductions, then income tax plus 7.65% employee FICA up to the applicable limits
1099 path: net profit × 92.35%, then self-employment tax, then income tax on profit less half of SE tax and less any QBI deduction
Both paths use the same 2026 brackets and standard deduction so the comparison is apples to apples
The equivalent rate solves for the 1099 profit that produces the same after-tax result as the salary
Tax-year assumptions
Uses 2026 brackets, standard deduction, and the 2026 Social Security wage base
Assumes a full year in one arrangement rather than a mid-year switch
Filing-status assumptions
All four filing statuses are supported
Spousal income is treated as other income for threshold purposes only