1099 vs W-2: True Cost Comparison Calculator
Updated July 10, 2026 · Reviewed by Max Berger, Co-Founder
Hiring someone as a 1099 contractor looks cheaper than a W-2 employee because the sticker pay is the whole cost. A W-2 employee carries employer payroll taxes, unemployment tax, workers comp, and benefits on top of salary. This calculator puts the two side by side so you can compare the true annual cost and see the real multiplier on a salary.
W-2 employee, fully loaded
$103,205
1099 contractor
$104,000
Effective cost multiplier on the W-2 salary: 1.29x
A $50/hour contractor rate equals roughly a $80,616 W-2 salary.
At these inputs, the 1099 contractor costs about $795 more per year than the fully loaded W-2 employee.
W-2 cost breakdown
- Base salary
- $80,000
- Employer FICA (7.65%)
- $6,120
- FUTA
- $42
- SUTA
- $243
- Benefits load
- $16,000
- Workers comp
- $800
- Total employer cost
- $103,205
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How this calculator works
The 1099 side is simple: the contractor's total annual pay is the whole cost to the business. In hourly mode we multiply the rate by the hours per year to annualize it.
The W-2 side stacks the employer's real costs on top of the base salary:
- Base salary.
- Employer FICA at 7.65% of salary (6.2% Social Security plus 1.45% Medicare). The 6.2% Social Security share applies only up to the Social Security wage base; above that, only the 1.45% Medicare share continues.
- FUTA, a flat federal unemployment tax of about $42 per employee, which is 0.6% of the first $7,000 of wages.
- SUTA, state unemployment tax, at your rate applied to wages up to your state wage base. The default is 2.7% of the first $9,000.
- Benefits load as a percentage of salary, covering health, retirement, and paid time off.
- Workers compensation premium per $100 of payroll.
The effective multiplier is the fully loaded W-2 cost divided by the base salary. To get the equivalence line we invert that multiplier: we take the contractor's annual pay and divide by the multiplier to find the W-2 salary that would cost the employer the same amount.
Misclassification warning
Choosing 1099 over W-2 is not just a cost decision. It is a legal test.
The IRS decides whether a worker is really an employee using three categories of control:
- Behavioral control: does the company direct how, when, and where the work gets done.
- Financial control: who controls the business side, such as tools, expenses, and the chance of profit or loss.
- Relationship: written contracts, benefits, permanency, and whether the work is a core part of the business.
Misclassifying an employee as a contractor can leave the business owing back payroll taxes, interest, and penalties, along with unpaid overtime, benefits, and unemployment claims. When a role is borderline, have a CPA or employment attorney review it before you decide.
This tool compares employer cost only. It does not model income tax, the contractor's own self-employment tax, benefits the contractor buys, or state specific rules. Rates and wage bases are current as of the date on this page and change over time.
Worked example
Say you can pay someone $50 per hour as a 1099 contractor, or bring them on as a W-2 employee at a $80,000 base salary. Assume full time hours of 2080 per year, a 20% benefits load, and workers comp of $1 per $100 of payroll.
On the W-2 side, the employer costs stack up like this:
- Base salary: $80,000
- Employer FICA at 7.65%: $6,120
- FUTA: $42
- SUTA at 2.7% of $9,000: $243
- Benefits load: $16,000
- Workers comp: $800
That totals $103,205 a year, a multiplier of 1.29x on the base salary. The contractor at $50 per hour for 2080 hours costs $104,000. Inverting the multiplier, that $50 per hour rate is worth roughly a $80,616 W-2 salary. At these inputs, the 1099 contractor costs about $795 more per year than the fully loaded W-2 employee.
Frequently asked questions
How much more should a 1099 contractor charge than a W-2 salary?
A common rule of thumb is 1.3 to 1.5 times the equivalent W-2 base salary. The premium covers the employer payroll taxes, benefits, and workers comp a company would otherwise pay on an employee, plus the contractor paying their own self-employment tax and buying their own benefits. This calculator shows the exact multiplier for your numbers instead of a generic rule.
What payroll taxes does an employer pay on a W-2 employee?
Employers pay the employer half of FICA, which is 6.2% for Social Security plus 1.45% for Medicare, a combined 7.65% of wages. They also pay federal unemployment tax (FUTA), which is 0.6% of the first $7,000 of wages, about $42 per employee at the full rate, and state unemployment tax (SUTA), which varies by state and experience rating. Workers compensation insurance and any benefits are on top of that.
What is the risk of misclassifying a worker as a 1099 contractor?
The IRS weighs behavioral control, financial control, and the type of relationship to decide whether a worker is really an employee. If a worker is misclassified, the business can owe back payroll taxes, interest, and penalties, and may face wage, benefit, and unemployment claims. Because the tests are fact specific, review borderline roles with a CPA or employment attorney before treating someone as a contractor.
Who pays self-employment tax on 1099 income?
The contractor does. A 1099 worker pays both the employee and employer halves of Social Security and Medicare as self-employment tax, currently 15.3% up to the annual Social Security wage base, on top of income tax. That is one reason contractors usually charge more per hour than an employee earns in equivalent wages.
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Book a callThese results are estimates for planning purposes only and are not tax or legal advice. Rules, rates, and thresholds change; figures on this page are current as of July 10, 2026. Consult a CPA or attorney about your specific situation before acting.