FreelanceWhat would the contract have to pay to beat the salary?
A salary quietly includes an employer paying half your FICA and most of your health cover. Going 1099 moves both onto your side. This works out the number that actually breaks even.
To match that salary you need
$115,364
The contract you entered comes out $3,222 a year ahead of the offer.
You need $115,364 of 1099 income to match a $90,000 salary. The contract you entered comes out $3,222 a year ahead of the offer.
| The salary offer | |
|---|---|
| Annual salary | $90,000 |
| Employee share of FICA | $6,885 |
| Federal income tax | $10,970 |
| State income tax | $0 |
| Take-home pay | $72,145 |
| Plus benefits the employer buys | $12,000 |
| What the offer is really worth | $84,145 |
| The 1099 contract you entered | |
| Gross 1099 income | $120,000 |
| Less business expenses | $6,000 |
| Net profit | $114,000 |
| Self employment tax, both halves | $16,108 |
| Qualified business income deduction | $17,969 |
| Federal income tax | $10,525 |
| State income tax | $0 |
| Take-home pay | $87,367 |
| The breakeven | |
| 1099 income that matches the offer | $115,364 |
| Premium over the salary | $25,364 |
Took the contract? FreelanceCFO tracks the tax you owe on it from your real income, and warns you before each deadline.
Start freeQuestions answered.
How much more does a 1099 contract need to pay than a salary?
Usually somewhere between 20% and 40% more, and the exact figure depends on your income, your state, and what the employer was paying for on your behalf. Two things drive it: you pick up the employer's half of Social Security and Medicare, which is 7.65% of earnings up to the wage base, and you buy your own health cover and retirement match. The qualified business income deduction gives some of it back, which is why the gap is smaller than the raw tax difference suggests.
Why do contractors pay more tax on the same income?
An employee and their employer split Social Security and Medicare down the middle, 7.65% each. A contractor is both halves, so they pay the full 15.3% on 92.35% of their net profit. Half of that self-employment tax is deductible against income tax, which softens it, but it does not remove it. Federal and state income tax work the same way for both, so the self-employment tax is the real difference.
What benefits should I count on the salary side?
Anything the employer pays for that you would otherwise buy yourself. The big one is their share of the health insurance premium, which is often between $6,000 and $18,000 a year for family cover. Add the 401k match you would actually earn, any life or disability cover, and a cash value for paid time off if you would genuinely take it. Leave out perks you would not pay for with your own money, because they are not worth their sticker price to you.
Does the qualified business income deduction close the gap?
Partly, and only up to a point. It takes 20% off your business profit before income tax, which is a real advantage employees do not get. But it is capped at 20% of your taxable income, and once taxable income passes $201,750 filing single or $403,500 filing jointly it starts phasing out against the wages your business pays. A solo contractor with no payroll can lose it entirely at the top of that range, so the gap widens again for high earners.
Is 1099 or W-2 better?
Money is only one axis and this calculator only answers that one. A contract that clears the breakeven number is genuinely better paid, but it also carries no unemployment insurance, no paid sick leave, no notice period, and income that can stop in a month. Contractors also control their own rates, clients, and hours, which is worth a great deal to some people and nothing to others. Use the number as a floor to negotiate against, not as the whole decision.