W-2 vs 1099 Tax Calculator (2026)
The same headline figure is not worth the same on a W-2 as on a 1099, because the employer half of payroll tax moves onto you. See both, and the contract rate you would need to end up level.
Reviewed by Teja K, CPA · last reviewed . General information, not tax advice for your situation. A calculator is an estimate, not a filed return. How we research and review this.
The same figure is applied to both columns
Contractor side only — an employee generally cannot deduct these
Enter the annual pay you are comparing to see it as a W-2 salary and as a 1099 contract, with the rate uplift needed to break even.
Tax year 2026. Federal tax only, and benefits are not valued. Employer payroll tax is shown because a contractor absorbs it.
What pushes back the other way
Two things work in the contractor's favour, and only one of them is in this calculation.
Deductible business expenses are. An employee generally cannot deduct unreimbursed work costs federally, while a contractor reduces taxable profit by genuine business expenses — equipment, software, professional fees, a qualifying home office, business mileage. Enter yours above and watch only the contractor column move.
Retirement capacity is not. A solo 401(k) or SEP-IRA can allow substantially larger tax-deferred contributions than a typical employee plan, and for a high earner that can outweigh the payroll tax difference entirely. It is a planning decision rather than a rate, so it is out of scope here and worth modelling separately.
Benefits are usually worth more than the tax gap
This page compares tax. It does not value what an employer provides alongside a salary, and for most people that is the larger number.
- Health insurance, where the employer contribution is typically substantial and is not taxable to you.
- Employer retirement contributions or matching, which is money you simply do not receive as a contractor.
- Paid leave, sick pay and public holidays. A contractor who does not work does not invoice.
- Unemployment insurance and workers' compensation cover, which contractors are generally outside.
- Unpaid gaps between contracts, and the time spent finding the next one.
A realistic comparison prices those and adds them to the employee side. The break-even rate below is a tax break-even, not a total-compensation break-even, and the real figure you should negotiate for is higher.
Which one applies is often not a choice
Worker classification is decided by the facts of the relationship — who controls how and when the work is done, whose equipment is used, whether the work is central to the payer's business, whether the arrangement is open-ended — not by which is cheaper or by what the contract calls it.
Getting it wrong is the payer's liability rather than yours, but it is still worth knowing that a role cannot simply be relabelled to move it into whichever column looks better here.
If you are on a visa, there is a prior question this calculator cannot answer: whether your status authorises independent contracting at all. That is an immigration matter and it outranks the tax comparison.
If you are contracting from India or have Indian income
Two situations come up repeatedly and both sit outside this calculation.
If you are a US taxpayer contracting for an Indian client, the income is still reportable on your US return, no US withholding will have occurred, and Indian tax deducted at source may support a foreign tax credit. If you are in India and contracting for a US client, whether the US taxes the income at all turns on your residency status and the treaty, which is a different question from the one on this page.
Either way, the state layer is where relief runs out: states are not parties to the India-US treaty, and a state credit for tax paid elsewhere usually means other US states rather than other countries.
Sources
Frequently Asked Questions
Do I pay more tax on a 1099 than a W-2?
On the same gross figure, yes — noticeably more. As an employee you pay 7.65% in Social Security and Medicare and your employer pays the matching half. As a contractor you pay both halves yourself through self-employment tax. Deductible business expenses reduce the gap, and at high income the Social Security cap narrows it.
What contract rate equals my salary?
Higher than the salary, and this page computes the figure. Enter your salary as the gross and the break-even contractor pay is the amount that leaves you with the same take-home after tax. Treat it as a floor rather than a target, because it prices only the tax difference and not the benefits you would be giving up.
Can I deduct expenses as a W-2 employee?
Generally no, not federally. The deduction for unreimbursed employee expenses is not currently available to most employees, which is why business expenses in this calculator move only the contractor column. Some states take a different position on their own returns.
Which is better for retirement saving?
Usually the contractor side, and it can be the deciding factor. A solo 401(k) or SEP-IRA can permit considerably larger tax-deferred contributions than a typical employee plan, because you are both employer and employee. That is not modelled here — this page compares tax on the income, not what you can shelter from it.
Does this include state tax?
No, federal only. State tax generally applies to both arrangements, so it narrows the proportional difference rather than changing the direction. A few states treat business expenses differently on their own returns.
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