1099 vs W-2 Calculator

What moves between the columns

• ·Self-employment tax replaces the employee half of FICA with both halves: 15.3% of 92.35% of net profit, against the $184,500 Social Security wage base for 2026. Half of it comes back as an above-the-line deduction, which softens the income-tax hit but not the payroll-tax hit.
• ·The § 199A qualified business income deduction is worth $22,105 here and is available only on the 1099 side. It is a below-the-line deduction, so most states do not follow it — the state tax column assumes they do not.
• ·The employer 401(k) match of $4,800 is untaxed compensation with no 1099 equivalent. A solo 401(k) lets a contractor save more in total, but every dollar of it is their own money.
• ·Replacing the employer health contribution costs $7,200 a year in cash. It is deductible above the line under § 162(l), but a deduction returns only your marginal rate — you are still out most of it.
• ·Assumes no other income on your return. On a joint return, enter your spouse’s wages and any other income to see the combined brackets and the § 199A income threshold.
• ·Not modelled: unemployment insurance and workers’ compensation coverage, paid leave, employer-provided disability and life insurance, quarterly estimated tax payment timing, and any state or local business licence or gross receipts tax. All of these fall on the contractor.
• ·Classification is not a choice the parties can simply make. Whether a worker is an employee or a contractor turns on behavioural control, financial control, and the relationship of the parties (IRS Publication 15-A). Same work, same supervision, same hours generally means employee, whatever the contract says.

Going freelance: first-year tax checklist

1. Start quarterly estimated payments immediately. Nobody is withholding for you any more. Underpayment interest runs from each missed due date, not from April. Quarterly tax calculator · penalty calculator
2. Budget for self-employment tax separately. It is a second tax on top of income tax, and it is the line that catches most first-year freelancers. Self-employment tax calculator
3. Open a solo 401(k) before year end. The employee deferral election generally has to be in place by December 31 even though the profit-sharing contribution can come later. Solo 401(k) maximizer
4. Claim the home office if you qualify. Regular and exclusive use is the test (daycare and inventory-storage exceptions aside). As a contractor you can take it — as an employee you could not. Home office deduction calculator
5. Track mileage from day one. Reconstructed logs are the single most common contemporaneous-records failure in audits of small Schedule C filers. Mileage deduction calculator
6. Confirm the classification is legitimate. If the work is supervised like a job, it probably is one. Publication 15-A sets out the test; Form SS-8 asks the IRS to decide.

Frequently asked questions

How much more should I charge as a 1099 contractor?

Enough to cover the employer half of payroll tax (7.65% of pay), the benefits you lose, and your own unpaid time. Self-employment tax is 15.3% of 92.35% of net profit rather than the 7.65% an employee pays, so payroll tax alone costs roughly 7–8% of income. Add an employer 401(k) match and health premiums and the required uplift over a salary is commonly 25–40%, which this calculator solves exactly for your numbers.

Do contractors pay double Social Security tax?

Not double — both halves. An employee pays 6.2% Social Security and 1.45% Medicare while the employer pays a matching 7.65%. A contractor pays the full 15.3% on net earnings — 92.35% of net profit — under IRC §1401, then deducts half of it above the line under §164(f). The deduction reduces income tax, not the payroll tax itself.

Does the QBI deduction make 1099 work better?

It helps, and it is the one structural advantage of contracting. Net self-employment profit is generally qualified business income eligible for a §199A deduction of up to 20%, which a W-2 salary can never claim. But it is a below-the-line deduction, so most states do not follow it, and for a specified service trade or business it phases out entirely above the income threshold.

Can my employer just reclassify me as a 1099 contractor?

Not by agreement alone. Classification depends on behavioural control, financial control, and the nature of the relationship (IRS Publication 15-A). If the work, the supervision and the hours do not change, the worker is generally still an employee, and the employer bears the liability for getting it wrong. A worker who disagrees can file Form SS-8 for an IRS determination.

What retirement account can a 1099 contractor use?

A solo 401(k) allows both an employee deferral and an employer profit-sharing contribution from the same business, which usually permits a larger total contribution than an employee gets — but every dollar of it is the contractor’s own money, unlike an employer match.