1099 vs W-2 calculator — what contract rate matches a salary
The salary-to-contract conversion that does not leave out the expensive parts.
Comparing a contract rate to a salary by dividing by 2,080 hours is the most common — and most expensive — pricing mistake in freelancing. It ignores self-employment tax, the benefits an employer was funding, and the weeks nobody pays you for.
This calculator converts both sides into the same thing: what you keep per hour you actually work. Put in a salary you could earn as an employee and the rate you currently charge, and it will tell you which side comes out ahead.
Why the obvious comparison is wrong
The standard way people compare a contract role to a salaried one is to take the salary, divide by 2,080 hours, and see if their hourly rate beats it. That calculation is wrong in three separate ways, and all three push in the same direction: it makes contracting look better than it is.
First, 2,080 hours is not what a salaried person works. With three weeks of paid leave and public holidays, a US employee is paid for 2,080 hours but works closer to 1,920. Their effective hourly rate is already about 8% higher than the naive division suggests.
Second, a salary is not the whole package. Employer health contributions, retirement matching, equipment and software are real compensation that a contractor has to buy from their own revenue. A common benchmark is 15% to 30% of salary on top.
Third — and this is the big one — the employer half of payroll tax does not disappear. A W-2 employee pays 7.65% for Social Security and Medicare, and their employer silently pays another 7.65%. A 1099 contractor pays both halves through self-employment tax, which means the tax line roughly doubles.
What this calculator actually does
It converts both sides to the same unit: what you keep, per hour you actually work.
On the W-2 side, the value of the job is the salary minus your half of FICA, plus the value of the benefits, divided by the hours you actually sit at your desk after paid leave is removed.
On the 1099 side, your revenue has to cover business expenses and the full self-employment tax before you see anything. The calculator solves for the hourly rate that leaves you with the same amount the salaried role would have left you with — and it does that after accounting for the weeks you will not be billing.
Because the Social Security portion of self-employment tax stops at the wage base ($176,100 in 2025), the gap between the two narrows at higher incomes. Enter your own numbers rather than trusting a rule of thumb, because the crossover point depends on your expenses and how much unpaid time you take.
The hidden cost most contractors forget
Unpaid weeks are the single most under-modelled item in freelance finances. A salaried employee with three weeks of leave, ten public holidays and a week of sickness is paid for roughly 47 weeks of a 52-week year while working about 46.
A contractor who takes four weeks off, loses two weeks to the gap between projects, and spends a week sick has roughly 45 billable weeks — and no one pays them for the other seven. That is a 15% reduction in annual revenue that has nothing to do with your rate.
This is why the "equivalent rate" figure in the calculator is usually 30% to 50% above the naive salary ÷ 2,080 number. Contractors who price at the naive number are, in effect, working for a pay cut and funding it out of their own holidays.
Reading the result
If the equivalent rate looks shockingly high, it is worth checking which input is driving it before you conclude your rate is unsustainable. Three usual suspects:
- Benefits percentage. If you have a spouse with employer health cover, or you genuinely would not buy the insurance the salaried job offers, lower this figure — 15% is a blend, not a rule.
- Unpaid weeks. Contractors with long-running retainers or agency relationships sometimes bill 50 weeks a year. If that is you, say so honestly, because it changes the answer materially.
- Expenses. A laptop bought three years ago and a couple of subscriptions do not add up to much. But co-working, professional insurance and an accountant do.
One thing this comparison deliberately leaves out: the QBI deduction. Many self-employed filers can deduct up to 20% of qualified business income, which meaningfully improves the 1099 side of the comparison at moderate incomes and is not modelled here. Treat the result as a conservative floor, not a precise answer.
When the non-financial factors should win
A spreadsheet cannot price job security, the cost of finding your next client, or the fact that a contract can end with two weeks' notice. It also cannot price the upside: contractors who build a specialism and a client list often end up earning well above any salary they could command, because they are not limited to one employer's pay band.
A reasonable way to read the output is this: if you are below the equivalent rate, you are paying for the privilege of freelancing. If you are comfortably above it, the premium is real compensation for the risk — and it should be going into a buffer rather than into lifestyle, because the risk does not go away.
This is a federal-tax-only comparison for 2025. It ignores state income tax, the QBI deduction, and any retirement contributions — all of which shift the answer, mostly in the contractor's favour. It is a planning tool, not tax advice; see the disclaimer and check your own numbers with a tax professional before making a decision.
Frequently asked questions
What hourly rate is equivalent to a $100,000 salary?
Using typical assumptions — 15% benefits, three weeks of paid leave, $10,000 of business expenses and four unpaid weeks — the break-even contract rate usually lands between $70 and $85 per hour, well above the $48 that dividing by 2,080 suggests. The gap is self-employment tax, unpaid time and benefits. Run your own figures above, because the answer moves a lot with expenses and how many weeks you can bill.
Is contracting actually more tax-efficient than employment?
It depends mostly on the QBI deduction. Self-employment tax is worse — you pay both halves of FICA — but many filers can then deduct up to 20% of qualified business income, which can more than offset it at moderate incomes. Above roughly $200,000 the balance shifts again. This calculator excludes QBI, so treat its output as the conservative case.
How much should I charge to cover my own benefits?
Add the annual cost of health insurance, retirement contributions you are now funding yourself, and any equipment or software a job would have provided. As a fraction of salary that typically lands between 15% and 30%. The calculator uses a percentage so you can test how sensitive the break-even rate is to that assumption.
Do I really pay double the payroll tax as a contractor?
Effectively yes. A W-2 employee pays 7.65% and their employer pays a matching 7.65% that the employee never sees. A 1099 contractor pays the full 15.3% through self-employment tax. The offset is that only 92.35% of net earnings is subject to it, and half of what you pay is deductible against income tax.
How do unpaid weeks change the maths?
Substantially. Every unpaid week removes about 1.9% of your annual billing capacity, so five unpaid weeks cost roughly 10% of your revenue. A salaried employee taking the same time off is still paid. This is the reason contract rates need to be materially higher than a salary conversion, not just marginally higher.
Should I use this if I work through an agency or umbrella company?
Partly. If you are paid through an umbrella company you are usually taxed as an employee, which removes the self-employment tax question entirely and makes the comparison much closer to a straight salary conversion. If you invoice clients directly as a 1099 contractor, this model applies.