Offered a contract instead of a salary — or thinking of going independent? The same dollar figure is not the same deal. A 1099 contractor pays more in payroll tax and gets no employer benefits, but gains business deductions and the QBI deduction. This guide breaks down the real 2026 differences and shows how much more you should charge to come out even. Compare your exact numbers with the 1099 vs W-2 Calculator.
The core difference: payroll tax
A W-2 employee pays only the employee half of FICA — 6.2% Social Security plus 1.45% Medicare, totaling 7.65%. The employer quietly pays the matching 7.65%. A 1099 contractor pays both halves as 15.3% self-employment tax. That extra ~7.65% is the first reason a contract rate must be higher. Contractors get some of it back through the deductible half of SE tax and the 20% QBI deduction, which lower income tax.
The bigger difference: benefits
Taxes are only part of the gap. As a 1099 contractor you replace, out of pocket, what an employer normally provides: health insurance, a retirement match, paid time off, and unemployment coverage. For many roles these are worth 20%–30% of salary — and they are the main reason the "charge 25%–40% more" rule exists.
Worked example: $100,000
| At $100,000 gross (single, no state tax) | W-2 | 1099 |
|---|---|---|
| Payroll / SE tax | $7,650 | $14,130 |
| Federal income tax (after QBI) | $13,170 | $8,235 |
| Approx. take-home | $79,180 | $77,635 |
At equal gross the 1099 nets a bit less on tax alone — and that is before replacing ~$12,000 of benefits. Add those, and the contractor needs a meaningfully higher rate to break even. The calculator solves for that exact break-even gross and rate uplift.
Frequently asked questions
How much more should I charge as a 1099 contractor?
Often 25%–40% more than the equivalent W-2 salary. The uplift covers the employer-side payroll tax (7.65%) plus benefits you replace — health insurance, retirement match, and PTO — which can add another 20%–30%.
Why does a 1099 contractor pay more tax than a W-2 employee?
A W-2 employee pays only the employee half of FICA (7.65%); the employer pays the other half. A 1099 contractor pays both halves as 15.3% SE tax, recovering part via the deductible half and the QBI deduction.
What is the QBI deduction?
It lets many self-employed people deduct up to 20% of net business income, lowering federal income tax. For 2026 it phases in limits above $201,775 (single) or $403,500 (married filing jointly).
Is 1099 or W-2 better?
Neither universally. W-2 brings benefits and withholding; 1099 brings higher gross rates, deductions, QBI, and flexibility, but you cover all taxes and benefits and pay quarterly estimated taxes.
Sources: IRS Topic No. 751; IRS — Self-Employment Tax; IRS Revenue Procedure 2025-32 (2026 brackets and QBI). This guide is educational and not tax advice.