1099 vs W-2: Which Actually Pays More?
A $60/hour contract and a $110,000 salary can leave you with wildly different amounts in your pocket. Here’s how to compare them honestly.
Why you can’t compare the headline numbers
A salary quietly bundles a lot of value that a contract rate has to make up on its own. Compare the raw dollars and you’ll talk yourself into a contract that actually pays less.
What a contract has to make up
- The employer’s half of payroll tax (7.65%). As a 1099 contractor you pay both halves — that’s self-employment tax.
- Health insurance. Subsidized on a W-2, full price on your own.
- The 401(k) match. Free money as an employee, gone as a contractor.
- Paid time off. A salary pays you for vacation weeks; a contract only pays for hours worked.
Add it up and a contract usually needs to pay 25–50% more than the equivalent hourly wage just to break even. Above that line, contracting can win — plus you get deductions and retirement options a W-2 can’t touch.
Compare your specific offer. The Contract vs Salary Calculator puts a 1099 rate and a W-2 salary side by side — after taxes, benefits, and the 401(k) match — and shows the exact break-even hourly rate.
The other side: what contracting gives you
It’s not all cost. As a 1099 contractor you can deduct legitimate business expenses, contribute far more to retirement through a solo 401(k), and often take on multiple clients. For many people the flexibility and upside are worth the extra admin — as long as the rate clears the break-even line.
The takeaway
Never compare a contract rate to a salary at face value. Run both through the numbers, find the break-even rate, and only take the contract if it beats it by enough to be worth the trade-offs.
General information, not tax or financial advice.
Frequently asked questions
Is 1099 or W-2 better?
It depends on the numbers. A 1099 contract has to cover what a salary includes for free — the employer half of payroll tax, health insurance, a 401(k) match, and paid time off. A contract rate usually needs to be noticeably higher than the equivalent salary just to break even, but above that line it can pull ahead.
How much higher should a 1099 rate be than a salary?
Often 25–50% higher than the equivalent hourly wage. On a $100,000 salary (about $48/hour), the break-even contract rate is frequently $60–70/hour once you add self-employment tax, self-funded benefits, and unpaid time off.
Do 1099 contractors pay more tax?
They pay both halves of self-employment tax (~15.3%) rather than splitting it with an employer, but they can also deduct business expenses and half the SE tax, and access retirement plans like a solo 401(k) that W-2 workers can’t.