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1099 vs W-2 Calculator
Company offering you the same rate as 1099 contractor or W-2 employee? One of these is a terrible deal. Let's figure out which—because "flexibility" doesn't pay for health insurance and you're about to learn what 15.3% self-employment tax feels like.
Income & Location
W-2 Benefits (if applicable)
💼 W-2 Employee
📋 1099 Contractor
📊 Comparison
W-2 Total Compensation: $0 (take-home + benefits)
1099 Net Income: $0 (after all taxes/expenses)
Winner: W-2 wins by $X/year
To match W-2 total comp, you'd need $0 as 1099 rate
1099 vs W-2: The Money Math
Recruiters love saying "same rate W-2 or 1099—your choice!" This is a trap. At the SAME rate, W-2 wins by $15k-30k/year once you factor in taxes and benefits. The 1099 "freedom" premium should be 30-50% higher pay, or you're subsidizing their cost savings.
💡 Real Talk from Jordan Taylor, CPA
Client got burned on this exact scenario. Tech company offered $90k W-2 or $90k 1099 "for flexibility." She took 1099. Year-end? Owed $18k in taxes (didn't budget for SE tax), paid $9k health insurance, zero 401k match. Net: $63k vs the $68k + $12k benefits she'd have gotten W-2. Total loss: $17k. She quit 8 months in. The flexibility was working the same office hours anyway. Always demand 30-40% more for 1099, minimum.
What W-2 Employees Get (That 1099s Don't)
Employer-Paid Taxes:
- 7.65% FICA (Social Security 6.2% + Medicare 1.45%)
- Federal/state unemployment insurance
- Workers' compensation insurance
Benefits:
- Health insurance ($8k-15k/year employer contribution)
- 401k match ($3k-6k/year typical 3-6% match)
- Paid time off (15-25 days = $5k-12k value)
- Sick days (5-10 days = $2k-4k value)
- Sometimes: dental, vision, life insurance, FSA/HSA match
Protections:
- Unemployment benefits if fired
- Workers' comp if injured on job
- FMLA (unpaid leave protection)
- Overtime pay (if non-exempt)
Total W-2 value: Often 20-35% more than stated salary.
⚠️ Common Mistake: "1099 Lets Me Deduct Everything!"
Technically yes—home office, equipment, mileage, etc. Reality? Most contractors have $5k-15k in legit deductions. That saves you $1k-4k in taxes (at 25% bracket). Meanwhile you LOST: $6k in employer FICA, $8k-12k in health insurance subsidy, $4k in 401k match. Net: You're down $10k-18k even WITH deductions. Business expense deductions are consolation prizes, not jackpots.
The Real 1099 Cost Breakdown
Example: $80 rate offered both W-2 and 1099
W-2 ($80k/year):
- Federal tax (22% bracket): -$11,000
- FICA (7.65%): -$6,120
- State tax (5%): -$4,000
- Take-home: $58,880
- Plus benefits: +$12k (401k match, health insurance)
- Total comp value: $70,880
1099 ($80k/year):
- Self-employment tax (15.3%): -$11,304 (on 92.35% of income)
- Federal tax (22% after SE deduction): -$10,200
- State tax (5%): -$4,000
- Health insurance (self-paid): -$8,000
- Take-home: $46,496
- Total comp value: $46,496
Difference: W-2 wins by $24,384/year
To match W-2 compensation, you'd need ~$110k as a 1099 contractor. That's a 38% premium.
When 1099 Actually Makes Sense
Take 1099 if:
- Premium is 30-50%+ over W-2: $80k W-2 → $105k-120k 1099 minimum
- Short-term gig (3-12 months): Flexibility worth the tax hit
- You have big deductions: $15k-30k/year in legit business expenses
- Spouse has benefits: Health insurance covered, you're on their plan
- True flexibility: Set your hours, work remotely, multiple clients at once
- Building a business: 1099 work funds your startup, W-2 kills time
Avoid 1099 if:
- Same rate as W-2 offer (you're getting screwed)
- Company controls your schedule (misclassification—report to IRS)
- Long-term role (2+ years) with no flexibility benefit
- You need health insurance and have no other source
- Can't handle quarterly estimated taxes (will owe $15k-20k surprise April bill)
💡 Jordan's Negotiation Script
Them: "We can do $85k W-2 or $85k 1099—your choice!"
You: "I appreciate the offer. However, at the same rate, 1099 costs me significantly more in taxes and benefits. W-2 at $85k gives me employer FICA ($6.5k), health insurance ($10k), and 401k match ($4k)—$20.5k in value. To match that as 1099, I'd need $110k. Can we discuss $110k for 1099, or I'd prefer W-2 at $85k?"
They'll either: A) Match $110k (you win), B) Counter $95k-100k (negotiable), or C) Say W-2 only (take it—they respect the math).
IRS Misclassification: When They're Breaking the Law
Companies hire "1099 contractors" to avoid payroll taxes and benefits. But IRS has rules. You're an EMPLOYEE (should be W-2) if:
- They control your schedule: "Work 9-5 in our office"
- They provide equipment: Computer, desk, tools
- You can't work for competitors: Exclusive contract
- Ongoing relationship: Been there 2+ years
- They train you: Onboarding, mandatory meetings
If 3+ of these apply, you're misclassified. Options:
- Report to IRS: Form SS-8 (takes months, burns bridges)
- Negotiate conversion: "I'd prefer W-2 given the nature of this role"
- Walk away: Find a company that respects labor law
Misclassification helps THEM (no payroll taxes) and hurts YOU (higher taxes, no benefits, no unemployment protection).
Quarterly Estimated Taxes: The 1099 Killer
W-2 employees pay taxes via paycheck withholding. 1099 contractors pay quarterly (April 15, June 15, Sept 15, Jan 15). Miss a payment? Penalties.
How to calculate:
- Estimate annual profit: Revenue - Business Expenses
- SE tax: Profit × 15.3% × 0.9235
- Income tax: Use tax brackets (22-24% typical)
- Total quarterly: (SE + Income + State) ÷ 4
Example: $100k 1099 income, $10k expenses
- Profit: $90k
- SE tax: $90k × 15.3% × 0.9235 = $12,718
- Federal tax: ~$14,000 (22% bracket after SE deduction)
- State (5%): $4,500
- Total annual tax: $31,218
- Per quarter: $7 ,805
Set aside 30-35% of EVERY payment immediately. Failure mode: spend it all, owe $30k in April.
Reviewed by Jordan Taylor, CPA
Tax Strategist (10 Years, 500+ 1099 Clients)
Jordan has saved contractors $2M+ in taxes. Their advice? Demand 30-40% more for 1099, or take W-2. Same rate = you're subsidizing the company's cost savings.
Frequently Asked Questions
What's the difference between 1099 and W-2?
W-2 = employee. Employer withholds taxes, pays half your FICA (7.65%), offers benefits, controls your schedule. 1099 = independent contractor. You pay all taxes (15.3% self-employment), buy your own health insurance, control your schedule but miss benefits. Same $80k: W-2 nets ~$60k after taxes + benefits. 1099 nets ~$52k after taxes/insurance, BUT you have flexibility and can deduct business expenses.
Do 1099 contractors pay more in taxes?
YES. 15.3% self-employment tax (both halves of FICA) vs 7.65% for W-2. Plus you lose: employer 401k match ($3k-6k/year), employer health insurance subsidy ($8k-12k/year), paid vacation ($6k-10k/year value). To match a $80k W-2 job, you need $95k-110k as a 1099 contractor. The 'freedom' costs $15k-30k/year in lost benefits and higher taxes.
Can I negotiate 1099 to W-2 conversion?
Sometimes. If company misclassifies you (you work set hours, use their equipment, can't work for others), IRS says you're an employee—report them or negotiate conversion. Leverage: 'I love this role, but 1099 costs me $X in taxes/benefits. Can we discuss W-2 at $Y salary (15-20% less than 1099 rate)?' Many companies prefer W-2 for long-term workers (avoids misclassification lawsuits). Red flag: they refuse and insist 1099 even though you work like an employee.
When is 1099 worth it?
Worth it if: 1) You value flexibility over security (set your hours, work remotely, multiple clients), 2) Rate is 30-50% higher than W-2 equivalent ($80k W-2 → $110k+ 1099), 3) You have deductible business expenses ($10k-20k/year—home office, travel, equipment), 4) Spouse has health insurance (avoids $8k-12k/year cost), 5) Short-term gig (6-12 months) with clear end date. NOT worth it for: long-term roles at low pay with no flexibility.