1099 vs W2 Income Comparison Calculator

A W2 employee works under an employer who withholds income taxes, pays half of Social Security and Medicare taxes (FICA), and typically provides benefits like health insurance and retirement matching. A 1099 independent contractor is self-employed, responsible for paying the full self-employment tax (both employer and employee portions of FICA), and must arrange their own health insurance and retirement plans, but can deduct business expenses.

Self-employment tax is the equivalent of FICA taxes that W2 employees split with their employer. For 2025, it consists of 12.4% for Social Security (on income up to 76,100) and 2.9% for Medicare (on all income), totaling 15.3%. The tax is calculated on 92.35% of net self-employment income. An additional 0.9% Medicare tax applies to income above certain thresholds. Half of the self-employment tax is deductible as an above-the-line deduction.

Independent contractors can deduct ordinary and necessary business expenses including home office costs, equipment and supplies, professional development, business travel, health insurance premiums (as an above-the-line deduction), and contributions to self-employed retirement plans like SEP-IRAs or Solo 401(k)s. These deductions reduce taxable income and can significantly lower the effective tax rate compared to the gross tax rate.

Financial advisors generally recommend that 1099 contractors charge 25-30% more than the equivalent W2 salary to account for the additional self-employment tax (7.65% employer portion), self-funded benefits (health insurance, retirement), lack of paid time off, and business expenses. The exact premium depends on the value of the W2 benefits package, state tax rates, and the contractor's deductible business expenses.