A 90,000 salary — the tax system treats the two very differently, and benefits are real money. This calculator models both packages through their payroll taxes: employee FICA on the W-2 side, self-employment tax on the 1099 side, with your benefits value and business expenses included, then shows which package nets more under the model.
How Each Side Is Calculated
W-2 employee. You pay the employee share of FICA: 7.65% (6.2% Social Security + 1.45% Medicare) on wages up to the Social Security wage base stored in the model — $168,600 — and Medicare's 1.45% on everything above it. (Your employer pays a matching share invisibly on top of your salary.) Modeled net value:
1099 contractor. You are the employer and the employee. Business expenses come off the top first; self-employment tax then applies to 92.35% of the remaining net business income at the combined 15.3% rate up to the same wage base (12.4% Social Security portion + 2.9% Medicare portion above it):
| Input | Meaning | | --- | --- | | W-2 income | Gross salary of the employee offer | | W-2 benefits | Annual value of employer benefits (health cover, 401(k) match, PTO you would use) | | Contractor income | Gross 1099 billings | | Contractor expenses | Deductible business costs (equipment, software, insurance, admin) |
Worked Example — the Higher Gross Loses
W-2: 6,000 benefits. Contractor: 10,000 expenses.
- W-2 FICA: 6,885 → net value 6,885 + 89,115**
- Contractor net business income: 10,000 = 95,000 × 0.9235 = 13,423.07** → net 13,423.07 = $81,576.93
The W-2 package wins by **15,000 less gross — the contractor's double-sided payroll tax and the value of benefits more than erase the headline gap. This is why experienced contractors price at roughly 1.25–1.4× the equivalent salary before the comparison even starts.
What the Model Leaves Out (Read Before Deciding)
This is a payroll-tax model, deliberately simplified. It excludes federal and state income tax on both sides — which also means it excludes the contractor's compensating deductions: half of SE tax is deductible, and eligible contractors get the 20% qualified business income (QBI) deduction, both of which claw back real money. It does not value paid leave, job security, unemployment insurance, employer retirement contributions beyond what you enter as benefits, or the cost and risk of gaps between contracts — nor the contractor's upside: multiple clients, rate growth, and expense flexibility. The stored wage base is the 2024 figure; later years use a higher base ($176,100 for 2025), which slightly changes results above that threshold. Classification itself is a legal determination based on the working relationship — an employer cannot simply choose the cheaper label, and misclassification penalties are severe.
Use the output as a negotiation floor: if the 1099 offer does not clear the W-2 package in this simple model, it will not clear it in real life. If it clears it comfortably, the remaining question is whether the margin covers the unmodeled risks — and that is a conversation for a tax professional with your full picture.
Frequently Asked Questions
Why do contractors pay 15.3% when employees pay 7.65%?
Because FICA has two halves. Employees see only their 7.65%; the employer pays the other 7.65% invisibly. A contractor is both parties, so the combined 15.3% lands on them — softened slightly by applying it to 92.35% of net income, which mimics excluding the employer-equivalent share.
How should I value the benefits input?
Add what the benefits would cost you to replace or what they are worth to you: the employer's health-insurance premium share, any 401(k) match (free money — count it fully), and paid time off you would actually take. Undervaluing this line is the most common way to make a weak contractor offer look strong.
Does this calculator decide whether I am an employee or contractor?
No. Classification depends on the facts of control and the relationship under IRS and state rules, not on this comparison or on what either party prefers. The tool compares compensation packages; it does not provide legal or tax advice.