1099 vs W-2: The Complete Comparison
The tax, benefit, and legal differences between an employee (W-2) and an independent contractor (1099). Plus a free calculator to see which pays more in your situation.
See which pays more for you
Compare a W-2 salary to a 1099 rate with real SE tax, benefits, and expenses.
Side-by-side
| Topic | W-2 Employee | 1099 Contractor |
|---|---|---|
| Tax withholding | Employer withholds federal, state, FICA | You pay everything yourself via 1040-ES |
| Social Security + Medicare | 7.65% (employer matches) | 15.3% SE tax on net profit |
| Health insurance | Typically employer-sponsored | You buy it — deductible as SE health insurance |
| Retirement | 401(k) with possible match | Solo 401(k), SEP IRA — higher limits |
| Paid time off | Vacation, holidays, sick leave | Unpaid — factor into your rate |
| Deductions | Very limited (std deduction + credits) | Schedule C — home office, mileage, software, etc. |
| Unemployment | Eligible | Not eligible in most states |
| Job security | At-will, but with protections | Contract-based, terminable with notice |
| Pricing | Set salary | Set your own rate, raise at will |
| QBI deduction | Not eligible | Up to 20% deduction via Section 199A |
Why 1099 isn't automatically better
When you move from W-2 to 1099, a few things change overnight:
- You pay the employer half of FICA (7.65%) on top of your own — self-employment tax at 15.3% of 92.35% of net profit.
- Health insurance, retirement contributions, and paid time off are now your responsibility.
- You owe estimated taxes four times a year — miss them and the IRS adds penalties.
The upside: deductions. A freelancer with a real home office, business mileage, software, and retirement contributions can offset a meaningful share of income — something W-2 workers cannot do.
The 1.5× rule of thumb
A rough benchmark: a fair 1099 hourly rate is 1.4–1.6× the equivalent W-2 hourly rate. At lower multiples, the 1099 route usually loses once you add in SE tax, benefits, and unbillable admin time. Use the 1099 vs W-2 Calculator to pressure-test an offer.
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Frequently asked questions
Is 1099 income always worse than W-2?
No. A 1099 rate roughly 1.4-1.6× the equivalent W-2 hourly rate breaks even once you account for SE tax, benefits, and expenses. Higher than that and 1099 usually wins.
Can I be both 1099 and W-2 in the same year?
Yes — many freelancers have both. File a Schedule C for your 1099 income and report W-2 wages on your 1040. You'll only pay Social Security up to the wage base combined across both.
Is it legal to convert a W-2 to a 1099?
Only if the worker genuinely meets the independent contractor test (control, financial independence, relationship). The IRS uses the 20-factor test and state agencies often use an ABC test. Misclassification carries large penalties.
Do 1099 workers get benefits?
Not from clients. Freelancers buy their own health insurance (often through the ACA marketplace) and set up their own retirement (Solo 401k or SEP IRA).
What tax form does a freelancer file?
Form 1040 with a Schedule C (business profit/loss) and Schedule SE (self-employment tax). Clients send 1099-NEC forms summarizing what they paid you.