The short answer
- A $100,000 salary works out to $48.08 an hour over 2,080 hours.
- To match it as a single contractor in Texas billing 32 hours a week for 46 weeks, with $5,000 of expenses, a $9,325 health plan and $4,000 of retirement savings, you need about $82.58 an hour: 1.72 times the salary rate.
- At $75 an hour the contract leaves you about $7,758 a year worse off.
- Bill 40 hours for 50 weeks and the break-even rate falls to $60.78. Unbilled time matters more than tax.
What changes when you go 1099
A W-2 employee is on the payroll. The employer withholds income tax, pays half of Social Security and Medicare, and usually adds health insurance, a 401(k) match and paid time off. A 1099 contractor runs a business of one. Clients pay the invoice in full and report it on Form 1099-NEC; everything else is your job.
- Social Security and Medicare
- 7.65%, employer pays the other half
- Health insurance
- Employer pays most of it
- Retirement
- 401(k), often with a match
- Time off
- Paid
- Equipment
- Provided
- Social Security and Medicare
- 15.3% self-employment tax
- Health insurance
- You buy it, deductible
- Retirement
- SEP IRA or solo 401(k)
- Time off
- Unpaid
- Equipment
- Yours, deductible
A worked example
Two offers for a single filer in Texas, which has no state income tax: a $100,000 job with a 4% match where you pay $1,440 a year toward health insurance, or a contract at $75 an hour.
- Salary$100,000
- Your health premium share−$1,440
- Social Security and Medicare7.65% of $98,560−$7,539.84
- Federal income tax−$12,853.20
- Employer 401(k) match4% of salary+$4,000
- Billed32 hours × 46 weeks × $75$110,400
- Business expenses−$5,000
- Health insurance−$9,325
- Self-employment tax−$14,892.55
- Federal income taxafter a $13,706 QBI deduction−$6,773.06
The job comes out $7,758 ahead. The contract would need to pay $82.58 an hour to match it. Put the other way, the contract is worth the same as a $89,566 salary.
Self-employment tax vs FICA
Employees pay 6.2% Social Security and 1.45% Medicare on wages, and the employer pays the same again. A contractor pays both halves as self-employment tax: 15.3% on 92.35% of net profit, with the Social Security part stopping at the 2026 wage base of $184,500. Half of it is deducted when working out income tax, which is the tax code’s way of treating the "employer half" as a business cost.
In the example, the employee pays $7,539.84 and the contractor $14,892.55: almost double, on similar pay. Our self-employment tax calculator breaks this down line by line, with quarterly payment dates.
Income tax and the QBI deduction
Contractors often pay less income tax than employees on the same money, for three reasons:
- Business expenses come off before tax.
- Half the self-employment tax and the self-employed health insurance premium are deducted from income.
- The qualified business income (QBI) deduction takes up to 20% of business profit off taxable income. From 2026 it phases out for specified service businesses (consultants, doctors, lawyers, financial advisers) above $201,750 of taxable income ($403,500 joint).
In the example the contractor’s federal income tax is $6,773.06, against $12,853.20 for the employee. Without the QBI deduction it would be $9,788.32 and the contractor would keep $71,394.13. Lower income tax only partly offsets the extra payroll tax and the costs.
What benefits are worth
The Bureau of Labor Statistics measures what employers spend. In December 2025, private-industry pay cost $46.15 an hour worked: $32.36 in wages and $13.79 in benefits. Benefits were about 30% of the total.
That figure includes paid leave, insurance, retirement, bonuses and legally required costs such as the employer’s half of Social Security and unemployment insurance. The calculator counts the parts that land in your pocket (the match, the health subsidy and paid time off) and asks you to add anything else you value.
Health insurance
KFF’s 2025 survey put the average employer plan at $9,325 a year for one person and $26,993 for a family. Workers paid about 16% and 26% of those; the employer paid the rest. As a contractor you pay the whole premium yourself, through the ACA marketplace or a private plan.
Self-employed health insurance is deductible from income, but not from self-employment tax, and only when you aren’t eligible for a spouse’s employer plan. Marketplace premium tax credits can lower the cost if your income qualifies. For a family, enter the family premium: it is often the single biggest item in the comparison.
Retirement: match vs SEP and solo 401(k)
A 4% match on $100,000 is $4,000 a year of free money. A contractor can save as much or more through a SEP IRA (up to 20% of net self-employment earnings) or a solo 401(k), where you contribute both as employee (up to $24,500 in 2026) and as employer. But the money is yours, not an extra from someone else.
The calculator counts the match on the job side and your own savings on the contract side, so both totals include retirement money. Our 401(k) calculator shows what a match grows to.
Paid time off and holidays
A salary pays you for 52 weeks, including vacation, public holidays and sick days. A contractor is paid only for weeks worked. Three weeks of vacation, ten holidays and a week of sick time come to about six weeks: that is why the calculator starts at 46 billed weeks.
Gaps between contracts count too. A contractor who spends a month between clients each year bills 42 weeks, not 46. Our salary to hourly calculator shows the same effect for unpaid days off.
Unbilled time
Contractors spend part of every week on work no client pays for: finding the next contract, writing proposals, invoicing, bookkeeping, chasing late payments and keeping skills current. Billing 32 hours of a 40-hour week is common; many freelancers bill fewer.
The same $100,000 job needs $60.78 an hour if you bill 40 hours for 50 weeks, but $82.58 if you bill 32 hours for 46. Billed hours move the answer more than any tax rule.
Business expenses
An employer supplies a laptop, software, a phone, an office and professional insurance. A contractor buys them. Typical costs include equipment, software subscriptions, professional liability insurance, accounting, a home office, travel and training. They are deductible, so they cut both income tax and self-employment tax, but they are still money out of your pocket.
The break-even rate
The calculator searches for the hourly rate at which the contract leaves you with exactly what the job does, after every tax, premium, expense and benefit. It also works the other way: the salary that would leave you as well off as the contract you were offered. Use the first when you set your rate; use the second when an employer asks what salary would make you switch.
Compare like with like
Both totals include retirement money: the employer’s match on one side, your own SEP or solo 401(k) savings on the other. Everything else is cash you can spend.
Is 1.25 to 1.5 times right?
A common rule says a contract rate should be 1.25 to 1.5 times the salary divided by 2,080. It works only when you bill close to full time all year. With no expenses, no health plan and no retirement savings, billing 40 hours for 52 weeks, the $100,000 job is matched at $51.21: just 1.07 times $48.08, because the QBI deduction and the deductions for half the SE tax offset most of the payroll tax. Add realistic time off, unbilled hours and a health plan, and the multiple rises to 1.72.
At other salaries
With the same 32 hours for 46 weeks and the same costs, single, in Texas:
| Salary | Salary per hour | Break-even contract rate |
|---|---|---|
| $60,000 | $28.85 | $54.50 |
| $100,000 | $48.08 | $82.58 |
| $150,000 | $72.12 | $118.39 |
The fixed costs (the health plan, expenses) weigh most on lower salaries, which is why the multiple is highest there: 1.89 times at $60,000 against 1.64 at $150,000.
State taxes
State income tax applies to both, so it changes the gap less than you might expect. In California the same example costs the employee $4,921.06 of state tax and the contractor $3,625.45, and the break-even rate moves from $82.58 to $82.21. A few cities, such as New York City and Philadelphia, add their own taxes on business income, which the calculator does not include. Some states also run disability or family leave programs that employees are enrolled in and contractors must opt into.
Quarterly estimated tax
Nobody withholds tax from a contractor’s invoices. You pay estimated tax four times a year: April 15, June 15 and September 15, 2026, and January 15, 2027. Setting aside 25% to 30% of each payment is a common habit. Missing payments brings an underpayment penalty, and a large bill in April can be a shock in the first year.
Are you really a contractor?
The label in a contract does not decide your status. The IRS looks at behavioral control (who decides how the work is done), financial control (who supplies tools, whether you can make a profit or loss) and the relationship (benefits, permanence). The Department of Labor applies its own economic reality test for minimum wage and overtime, and some states, such as California, use a stricter ABC test.
If you are treated as a contractor but work like an employee, you can ask the IRS for a ruling on Form SS-8, and file Form 8919 to pay only the employee share of Social Security and Medicare.
When the contract wins
- You can bill close to full time all year, or charge a premium for a specialty.
- You already have health insurance through a spouse.
- You have several clients, so losing one doesn’t stop your income.
- You want to save more for retirement than an employer plan allows.
- You value control over when, where and how you work.
At $75 an hour billing 40 hours for 50 weeks, the example contractor keeps $101,936.88: about $19,770 more than the job.
Common mistakes
- Dividing the salary by 2,080 and adding 20%, without counting unbilled time.
- Forgetting that health insurance is the biggest benefit for most people.
- Counting the employer half of payroll tax as a benefit and the 15.3% self-employment tax as well: the calculator counts it once.
- Spending each invoice in full and having nothing set aside for quarterly tax.
- Assuming a contract role is a stepping stone to a staff job.
Using the calculator well
- Enter the salary and the contract rate you were offered.
- Be honest about billable hours and weeks: check last year’s calendar if you already freelance.
- Under More options, enter the job’s match and premium share from the benefits guide, and real quotes for your own health plan.
- Read the break-even rate and the equivalent salary.
- Use the table to see how much each rate step is worth.
For a paycheck view of the job, try our paycheck calculator.
Key numbers
| Item | 2026 figure |
|---|---|
| Employee Social Security and Medicare | 7.65% (6.2% + 1.45%) |
| Self-employment tax | 15.3% on 92.35% of profit |
| Social Security wage base | $184,500 |
| QBI deduction | Up to 20% of business profit |
| QBI phase-out starts (taxable income) | $201,750 single, $403,500 joint |
| 401(k) employee limit | $24,500 |
| Average employer health premium (KFF 2025) | $9,325 single, $26,993 family |
| Benefits' share of private-sector compensation (BLS, December 2025) | about 30% |