How much higher should a 1099 rate be than a W-2 hourly wage?

There is no universal multiplier. A useful comparison includes employer-paid benefits, realistic billable hours, business expenses, replacement benefits, and an adjustable reserve for contractor-specific tax burden.

Does this calculator determine my taxes?

No. The additional tax reserve is a planning input, not a tax calculation. Actual federal, state, local, payroll, deduction, and entity-level tax treatment varies.

Should paid vacation be added to W-2 compensation?

Salary generally continues during paid time off, so this calculator handles the difference mainly through fewer contractor working weeks rather than adding PTO twice to W-2 compensation.

Compensation comparison guide

1099 vs W-2 calculator

Compare the economic value of an employee offer with a contractor offer—then see the approximate 1099 hourly rate needed to break even after benefits, business costs, and your own planning reserve.

Compare offers How to use it

Interactive calculator

Compare both offers on the same basis

Enter annualized figures. This is an economic planning comparison—not a tax return calculation.

Your assumptions

Start with the actual offer terms, then replace defaults with your own costs.

Calculated in browser

Tutorial

How to use the 1099 vs W-2 calculator

A W-2 salary and a contractor hourly rate are not directly comparable. Employees may receive paid time off, employer-sponsored health coverage, retirement contributions, equipment, payroll administration, and other benefits. Contractors may have more flexibility and potentially more upside, but they also absorb business costs and unpaid time.

Step 1: enter the W-2 compensation you would actually receive

Use the annual salary from the offer. Add only benefits you can reasonably value in dollars. If the employer pays part of your health premium or contributes to retirement, include the employer portion—not your own contribution.

Step 2: estimate realistic 1099 billable capacity

Do not automatically use 52 weeks. A contractor who takes four unpaid weeks off should start around 48 working weeks. If a contract guarantees 40 billable hours every week, use 40. If you also need to sell, market, invoice, or wait between projects, use a lower number.

Step 3: include costs you must replace yourself

Business software, insurance, accounting, equipment, professional fees, health coverage, and retirement funding can materially change the comparison. The calculator keeps those visible instead of hiding them inside a generic multiplier.

Step 4: treat the tax reserve as an assumption

The additional contractor tax reserve is deliberately editable. It is not an estimate of your total income tax. Your actual tax treatment depends on income, deductions, entity structure, location, other wages, and many other factors.

Step 5: compare the offered rate with the break-even rate

If the offered 1099 rate is below the displayed break-even rate, the contractor offer has lower modeled economic value under your inputs. That does not automatically make it a bad offer: flexibility, remote work, schedule, career opportunity, and deductible business costs may matter to you in ways this calculator cannot price.

Worked example

$100,000 W-2 versus $75/hour 1099

Suppose the W-2 offer includes $8,000 of employer health benefits, $4,000 of retirement contributions, and $2,000 of other benefits. The 1099 role pays $75/hour for 40 billable hours across 48 weeks, while the contractor expects $5,000 of business expenses and must replace those health and retirement benefits. Enter those numbers above and adjust the reserve to your own planning assumption. The result shows both modeled annual values and the hourly rate at which they are approximately equal.

What this comparison does not capture

Worker classification rules, overtime, unemployment protection, workers’ compensation, equity, bonuses, severance, paid leave rules, tax deductions, insurance risk, contract termination terms, and career considerations can all matter. Use this calculator as a structured starting point—not as a substitute for reviewing the actual agreement.

FAQ

Common 1099 vs W-2 questions

How much higher should a 1099 rate be?

There is no universal percentage. The right premium depends on benefits, unpaid time, business expenses, utilization, risk, and your tax situation. Use the break-even result as a personalized starting point.

Does this tell me whether I should be classified as an employee or contractor?

No. Worker classification is a legal question governed by applicable law and the actual working relationship, not by which compensation method pays more.

Should I count PTO as an extra W-2 benefit?

Usually avoid double counting it. Salary already continues during paid PTO. Model the contractor side with fewer working weeks to reflect unpaid time away.

Related tools