Updated · Built and checked by the PlinzoTools team, formulas tested against published sources
Compare the payroll-tax burden of being paid the same gross income as a W-2 employee vs. a 1099 contractor.
This tool compares the payroll-tax-equivalent burden of earning the same gross income as a W-2 employee (who pays only the "employee half" of FICA, 7.65%) versus a 1099 independent contractor (who pays the full self-employment tax, 15.3% of 92.35% of net earnings, since there's no employer to split it with). This is deliberately scoped to payroll/self-employment tax only, not a full income tax comparison -- a 1099 contractor can also deduct half of their SE tax and may claim business expenses a W-2 employee can't, both of which meaningfully affect a true side-by-side comparison but depend too much on individual circumstances to model honestly here.
Enter the same gross annual income you'd earn either way. The W-2 employee FICA share and the full 1099 self-employment tax appear side by side, along with the difference.
For the W-2 side, the tool applies the employee share of Social Security to income up to a built-in wage cap, then adds the employee share of Medicare on all income. For the 1099 side, it first takes 92.35 percent of your gross as net earnings, then applies the doubled Social Security rate up to the same cap and the doubled Medicare rate on the full net amount. The difference is shown as the extra payroll-type tax a contractor carries. Because the Social Security portion stops at a wage cap, the gap does not grow forever as income rises; above the cap only the Medicare portion keeps increasing. The cap is a fixed value inside the tool, and the official figure is updated by the Social Security Administration, so verify the current wage base at SSA.gov if you are near it.
Consider a hypothetical 60,000 of gross income. As a W-2 employee, the employee share of FICA is 7.65 percent of 60,000, which is 4,590. As a 1099 contractor, net earnings are 60,000 times 0.9235, or 55,410; multiplying by 15.3 percent gives about 8,478. The contractor's burden is roughly 3,888 higher. That gap is roughly what a contractor would need to add to a hourly or project rate just to break even on payroll taxes, before considering benefits or expenses.
A helpful way to use the tool is to compare an employee salary with a contractor rate. Enter the contractor gross and note the payroll-tax gap, then estimate what benefits you would have to purchase yourself. If a 1099 offer pays the same as a W-2 salary, the contractor is effectively paid less after payroll tax and benefits. Ask for a rate that covers the difference, and remember unpaid holidays and downtime when you are self-employed.
Whether someone is an employee or an independent contractor depends on the working relationship, not on what the paperwork says. Agencies apply tests that look at control, independence and how the work is done, and misclassification can result in back taxes and penalties for both sides. If you are unsure, an accountant or employment attorney can help, and the IRS publishes guidance on the topic.
Not necessarily -- a 1099 contractor often negotiates a higher rate to account for this exact gap, can deduct half of the SE tax from taxable income, and may claim business expenses a W-2 employee cannot. This tool shows only the raw payroll-tax difference, not the full financial picture.
Self-employment tax is figured on 92.35 percent of net earnings, which approximates removing the employer-equivalent half of the tax from the base. The tool follows that convention.
No. It compares only payroll-type taxes. Income tax, state tax, deductions and credits are not included.
Use the gap as a starting point, then add the value of benefits you would buy yourself and any unpaid time. The tool alone does not calculate a break-even rate.
Yes. Above the cap, only the Medicare portion applies to additional income. Check the current cap at SSA.gov because the tool uses a fixed value.
Reference: U.S. Department of Labor