I · Calculators · IRS 2025 SE tax + Schedule SE · IRS §199A QBI deduction (CFR 1.199A-1) · KFF Employer Health Benefits Survey 2024 (median family premium $25,572) · BLS Employee Benefits Survey 2024 (employer 401k match + paid leave) · state DOR 2025 schedules (DCEngine) Last synced 2026-05-04

1099 vs W-2 Calculator — True Break-Even Hourly Rate (SE Tax + QBI + Benefit Replacement)

Five layers — SE tax (15.3% on net earnings), half-SE deduction, QBI 20% pass-through phaseout (specified-service vs not), state tax (DCEngine 51-jurisdiction), and benefit replacement (median family health plan $24,500/yr per KFF 2024 + lost employer 401(k) match + employer-paid FICA + 2 weeks PTO + 6 days sick). SmartAsset and ADP do SE tax only. Carry says they have 'real numbers' but skip QBI. We're the only calculator that surfaces the full delta and outputs a defensible break-even hourly rate.

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SE tax: 15.3% (12.4% Social Security up to $176,100 + 2.9% Medicare uncapped) on 92.35% of net SE earnings. Above $200K (single) add 0.9% Additional Medicare. Half-SE deduction: half of computed SE tax is deductible against federal AGI. QBI: up to 20% deduction on qualified business income; SSTB (specified service: consulting, law, health, accounting) phases out between $241,950 and $291,950 (single, 2025). Non-SSTB (manufacturing, dev, design) phases against W-2 wages + 2.5% UBIA — generally available even at high income. Benefit replacement cost: family health plan $25,572 × employer-paid share 73% = $18,668; lost employer 401(k) match = 4% × W-2 base; employer-paid FICA = 7.65% × W-2; PTO replacement = (10 days holiday + 10 PTO + 6 sick) / 250 work days = 10.4% wage drag. Break-even hourly rate: solve for the 1099 rate that delivers the same after-everything net as the W-2 baseline.

Reader questions 9 questions answered
What's the rule of thumb for 1099 vs W-2 hourly rate?
The naive 'multiply W-2 hourly by 1.30' (Carry, Indeed Career Advice) ignores benefits. A more honest rule: 1099 hourly = W-2 hourly × 1.55–1.85 at typical W-2 packages. The multiplier comes from: 7.65% employer FICA (already gross-up) + 18–22% benefit replacement (health + 401k match + PTO) + 5–8% lost paid leave + 5–8% no-employer-disability/life. The multiplier is lower if you're already on a spouse's health plan (subtract 12–15%) and higher if you have a family plan you'd otherwise lose (add 5–8%).
What is QBI and do I qualify?
QBI is the IRC §199A deduction — up to 20% off your qualified business income, taken on Form 8995. Most 1099 contractors qualify, but the rules differ by income and trade: (1) under $191,950 single (2025), straight 20% of QBI; (2) above that, two-tier test: SSTB (specified service trade: consulting, health, law, accounting, financial services, performing arts, athletics, anything where the principal asset is the reputation or skill of an employee/owner) phases out completely by $241,950; non-SSTB tests against your W-2 wages paid + 2.5% UBIA, so a sole proprietor with no employees gets reduced QBI above the threshold but retains some deduction even at $1M+. Software developers and design contractors are typically non-SSTB.
How much does health insurance actually cost as 1099?
The 2024 KFF Employer Health Benefits Survey: median annual premium = $8,951 single / $25,572 family. As 1099 you pay all of it (no employer share). Marketplace ACA plans for the same coverage tier (silver, $5K deductible) median premium for a 40-year-old: $470/month single / $1,580/month family — about 20–40% lower than employer-group on the same coverage tier because of risk-pool differences. With a $100K AGI you typically get no ACA premium tax credit (200–400% FPL cliff). Health is the single biggest 'real cost' of 1099 — and also the easiest to underestimate when comparing offers.
What about S-Corp election?
Once your net SE income exceeds about $50–80K, an S-Corp election + reasonable salary can save 5–12% versus straight Schedule C. The play: pay yourself a 'reasonable' W-2 salary (subject to FICA), distribute the rest as K-1 (no FICA, no SE tax, but does pay regular income tax). Saves the 15.3% on the distribution portion. Costs: ~$500–1,000/yr in additional CPA fees + payroll service + state S-Corp tax (CA 1.5% with $800 minimum, NY varies). Break-even is roughly $50K net SE income — below that the admin cost eats the saving. Our calculator tracks straight Schedule C; S-Corp savings are an additional 5–12% on top of what we show.
Are home-office and mileage deductions worth tracking?
Yes — they don't change your break-even hourly rate but they change your effective tax. Home office: simplified method $5/sq ft up to 300 sq ft = $1,500 max. Vehicle: 2025 standard mileage rate $0.70/mile for business miles — a 1099 with 5,000 business miles deducts $3,500. Together, a small contractor can deduct $4–8K of legitimate expenses that reduce both federal income tax (at marginal rate) and SE tax (at 14.13% effective). Our break-even calculator assumes zero deductible expenses (conservative); your actual after-tax outcome is usually better.
How does state tax change the break-even?
Significantly. State tax stacks on top of federal income tax (it doesn't stack on SE tax — SE is federal-only). A California 1099 at $200K pays 9.3% marginal state on top of 32% federal + 15.3% SE on the first $176,100 = combined 50%+ at the margin. Same income in Texas or Florida pays just federal + SE = 41% at the margin. A break-even rate that matches a $200K W-2 in California is much higher than the same break-even in Texas, because the W-2 baseline already takes the state-tax hit. Our calculator runs DCEngine state-tax tables and shows you the state-aware break-even.
Is the difference better as 1099 if I'm low-income?
Sometimes — below the SE-tax break (~$25K net) the QBI 20% deduction + low marginal bracket can make 1099 marginally better than W-2 on after-tax. But the benefit-replacement cost crushes that small advantage: even one health-insurance premium ($470/mo solo) = $5,640/yr is 22% of a $25K gross. For most low-income contractors, W-2 wins because (a) the employer pays 7.65% FICA on top, (b) employer health is partial-subsidized and uses pre-tax payroll, (c) ACA marketplace credits favor W-2 income better. Our calculator shows the breakdown so you can see the binding constraint.
What about disability and unemployment insurance?
1099 contractors get neither. State unemployment insurance is funded by employer payroll tax — 1099 self-employed are excluded from regular UI in 48 states (CA, NJ have small carveouts). State disability: only CA, NY, NJ, RI, HI run state programs and 1099 are excluded. Federal Social Security disability (SSDI) does cover self-employed who paid SE tax for 5+ of the last 10 years, but the benefit is much lower than employer-private STD/LTD. The expected-value cost of self-funding equivalent coverage: $40–80/month for STD/LTD policies on a 40-year-old. We don't add this to the break-even by default; check the 'include disability replacement' toggle if you want it included.
What if my employer offers both W-2 and 1099?
Misclassification is a major IRS audit area. If you're working set hours, taking direction on how to do the work, and using employer-provided tools, you're a W-2 employee regardless of what your contract says — the IRS uses 20-factor common-law test. The classic 'misclassified contractor' scenario: tech company hires you as 1099 to skip payroll tax, but you sit in their office, attend standups, and use their laptop. If audited, the company eats back-payroll tax + penalties + your unpaid SS/Medicare. From your side, you can file Form 8919 to recover the half-FICA. This is a legal risk for the employer, not for you.