A 1099 freelancer keeps about 20% less than a W-2 employee at the same gross. Why? You pay both halves of Social Security and Medicare. About $13,000 a year on $85,000. See the real gap below. Then compare your own numbers.
Enter your income. Pick your state. We estimate federal and state tax, self-employment tax for the 1099 side, and your real cash left over.
Estimates only. Actual taxes depend on credits, other income, itemized deductions, and law changes. Not tax advice.
A 1099 path often costs more in tax than a W-2 with the same gross pay. Here is why. In plain words.
As an employee, your company pays a matching share of Social Security and Medicare. You pay one half. Your job pays the other half. Behind the scenes.
As a freelancer, you are both the worker and the boss. There is no company to pay the other half. You pay both halves. That alone is why your net pay can look much smaller than an employee's. Even with a great contract rate.
This is the line you see on Schedule SE. It covers Social Security and Medicare for people who work for themselves. The rate is 15.3% on your business profit. Up to a cap.
It is not income tax. Income tax is what you pay on your taxable income after deductions. Self-employment tax is on top. Because you are paying both halves. Our calculator shows this as a separate line. So you can see exactly where the money goes.
W-2 jobs come with benefits you don't feel in your check. Health insurance. 401(k) match. Paid time off. They have real value. But they don't show up as cash.
As a freelancer, you pay for health and retirement with money you already earned. Business expenses only cut your taxes if you track them. And if they qualify. Forget to log software, travel, or insurance? You pay tax on money you already spent. Our inputs include expenses and health costs. So your comparison is real.
Same gross pay. Same state. The 1099 side pays a lot more in tax. Here is the gap.
| Line item | W-2 employee | 1099 freelancer |
|---|---|---|
| Gross income | $85,000 | $85,000 |
| Business expenses | $0 | −$8,000 |
| Self-employment tax | $0 | −$10,880 |
| Federal + state income tax | −$15,500 | −$11,200 |
| Health insurance (you pay) | −$1,800 | −$4,800 |
| Take-home cash | $67,700 | $50,120 |
Rough numbers. Your real tax depends on your state, deductions, and benefits. Run the calculator above for your exact gap.
Quick rules. Then use the calculator above to check the real numbers for your life.
| Situation | Better option |
|---|---|
| Stable income needed | W-2 |
| High earning potential | 1099 |
| Want benefits | W-2 |
| Want flexibility | 1099 |
The big question is simple. Will you keep more after tax as a contractor or as an employee? The answer depends on your income. Your state. Your deductions. And who pays your Social Security and Medicare. Here is what the labels mean.
"1099 employee" is everyday language. The IRS calls you an independent contractor. Your client sends you a Form 1099-NEC when they pay you $600 or more in a year. You are running your own business for tax purposes. So you owe self-employment tax (Social Security and Medicare). Plus federal and state income tax. No one withholds tax from your check. You pay it yourself. Most freelancers pay every three months.
W-2 means you are an employee. You get a Form W-2 at year-end. It shows your wages and the tax already taken out. Your employer pays half of your Social Security and Medicare. You pay the other half through your paycheck. Plus federal and state income tax. Health insurance and 401(k) match are common too. They don't show up as cash. But they have real value.
The big difference is who pays the employer share of payroll tax. On a W-2, you and your employer split Social Security and Medicare. On 1099, you pay both halves. That is the self-employment tax. About 15.3% on your business profit. Up to a cap.
Income tax is on top of that. So freelancers can owe two big tax lines instead of one. How much tax you really pay depends on your profit, your state, and your family. Retirement, health insurance, and real business expenses all change the answer. That is why a side-by-side calculator beats any rule of thumb.
There is no employer paying half of your Social Security and Medicare. So you pay both halves. That shows up as self-employment tax. About 15.3% on your business profit. W-2 employees still pay their half. But they don't see the employer's share come out of their check. Freelancers also pay for their own health and retirement. So the real gap is even wider.
You can't avoid taxes you owe. But you can pay less in practice. Track every business expense. Use a retirement account built for self-employed people. Deduct your health insurance when the rules allow. Keep good records. Pay your estimated tax every three months. The calculator above shows how each choice changes your take-home.
It depends on your real take-home pay. Plus how steady your work is. And how much you value flexibility. Some freelancers earn way more than employees. Others don't, once taxes and benefits are counted. Run both paths in the calculator above at the same gross. Then decide.
After comparing 1099 and W-2 take-home, use these calculators to connect your rate to a salary or to plan debt payoff.
Convert an hourly or per-hour contract rate to annual pay and see take-home estimates on the Income page—helpful when work is quoted in dollars per hour.
Open hourly to salary calculatorModel balance, APR, and payments to see payoff time and interest on the Debt page—useful for cash flow once you know your real take-home.
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