1099 vs W-2: How Much More Should a Contractor Charge? (2026)

Why the same number is worth less on a 1099

• Self-employment tax: an employer pays half of Social Security and Medicare (7.65%) for a W-2 employee. As a contractor you pay both halves, 15.3% on most of your net earnings, though half of it is deductible.
• Benefits: employer-subsidised health insurance, retirement matching and paid leave disappear. You buy or self-fund each of them.
• Unbilled time: holidays, sick days, sales calls, admin and gaps between contracts are unpaid. Few contractors bill all 2,080 hours in a year.
• Business costs: equipment, software, insurance and accounting come out of your rate, not an employer's budget.

What works in your favour

Contractors can deduct ordinary business expenses and may qualify for the Section 199A qualified business income (QBI) deduction, subject to income limits and business type. Self-employed retirement plans (SEP-IRA, Solo 401(k)) can also shelter more income than a typical employee plan.

These offsets are real, but they rarely close the whole gap. That is why contractors usually need a multiplier on top of the W-2 hourly equivalent.

A practical way to set your rate

Many contractors land between 1.25× and 1.5× the W-2 hourly equivalent, but the right multiplier depends on your benefits, state and utilisation. The W-2 vs 1099 calculator runs these steps with your own inputs.

• Start with the total W-2 package: salary plus the value of health cover, retirement match and paid time off.
• Add the employer half of FICA (about 7.65%) that you will now pay yourself.
• Divide by realistic billable hours, often 1,500–1,800 rather than 2,080.
• Add your annual business costs, then sanity-check against market rates for your role.

State tax changes the answer too

The same rate can leave very different take-home pay in California compared with Texas or Florida. If you can work from anywhere, compare state income tax before you settle on a number.