Employee or contractor: what changes for your money
A job paid on Form W-2 and a job paid on Form 1099 can have the same headline pay and very different take-home pay. As an employee, your employer withholds your share of Social Security and Medicare and also pays a matching share. As an independent contractor you pay both shares yourself as self-employment tax, you cover your own business expenses, and you do not get employer benefits. This calculator puts the two side by side for the same yearly pay.
It compares money only. It does not tell you, or anyone, whether a worker is an employee or a contractor. That depends on the facts of the working relationship under the tests below, and the label in a contract does not decide it.
How the two sides are calculated
- Employee: Social Security 6.2% up to the 2026 wage base of $184,500, Medicare 1.45%, and an extra 0.9% Medicare on wages above $200,000 ($250,000 for joint filers), plus estimated federal income tax after the standard deduction. The employer pays its own matching share on top (6.2% Social Security up to $184,500 plus 1.45% Medicare on all pay, which is 7.65% on pay below the wage base), and this does not come out of your pay.
- Contractor: self-employment tax of 15.3% (12.4% Social Security plus 2.9% Medicare) on 92.35% of net profit, where net profit is revenue minus business expenses. The 12.4% part stops at the wage base. You owe the tax once net earnings are $400 or more. Half of the self-employment tax is deducted when figuring income tax.
- QBI deduction: many sole proprietors can deduct up to 20% of qualified business income. The 2025 law made this deduction permanent and added a $400 minimum for owners with at least $1,000 of qualified income from an active business they materially participate in. The calculator uses the full 20% when taxable income is below $201,750 ($403,500 for joint filers). Above those amounts the deduction can be limited by W-2 wages, business property and the type of business, so the calculator assumes none of those apply: it phases the deduction out gradually up to $276,750 ($553,500 for joint filers), then keeps only the $400 minimum, and says so. A specified service business (such as consulting or health care) would get less.
The estimate assumes this is your only income, with the standard deduction and no credits or state tax. For quarterly payments, use the self-employment tax calculator. You can also enter the value of employer benefits you would give up, such as a health premium or a retirement match, and the calculator shows the pay a contractor would need to bill to come out even.
The checklist the agencies use
The IRS looks at the whole relationship in three groups: behavioral control (does the business direct what the worker does and how), financial control (who pays for tools and expenses, and who can make a profit or loss), and the type of relationship (contracts, benefits, how long the work lasts, and whether it is a key part of the business). The Department of Labor uses an "economic reality" test for wage and overtime law. We found that the Department proposed a new rule in February 2026 and had not published a final one when we checked on October 13, 2026, so check its page for the latest. States can use their own tests, such as an ABC test. The page has a plain checklist with links and does not score your answers.
Forms and rules worth knowing
- Form 1099-NEC: for payments made in 2026, a business generally reports contractor payments of $2,000 or more. The old limit was $600.
- Form W-9: a business usually asks a contractor for one so it has the taxpayer identification number to report.
- Form SS-8: the business or the worker can ask the IRS for an official ruling on worker status. The IRS says it may take at least six months.
- Misclassification: if a worker was treated as a contractor but the facts show an employee, the business can owe back payroll taxes and penalties.
If you are the one hiring, see the employer cost calculator for what an employee costs you. This page is general information, not tax, legal or HR advice.
Frequently asked questions
Is a 1099 contractor always better paid than a W-2 employee?
Not necessarily. A contractor pays both halves of Social Security and Medicare, covers business expenses and usually gets no employer benefits, paid leave or unemployment insurance. The break-even figure in the calculator shows how much more a contractor would need to bill to keep the same amount.
Can my employer simply decide to pay me on a 1099?
Not by choice alone. Status depends on the real working relationship under IRS, Department of Labor and state tests. A worker or a business that is unsure can ask the IRS for a determination on Form SS-8, and a worker can also ask their state agency. This calculator does not decide status.
Do I owe tax on 1099 income if I do not get a form?
Yes. All income is taxable, even if no Form 1099 is sent. Businesses must file a 1099-NEC only when they pay a contractor $2,000 or more for services in 2026, but the contractor still reports every dollar earned.