W-2 vs 1099 Taxes

W-2 employees and 1099 contractors can have very different tax outcomes even when gross income looks similar. The difference is not only income tax. Payroll taxes, business deductions, benefits, insurance, and retirement options all matter.

W-2 employee basics

Employees usually have income tax withheld from paychecks. They also pay the employee portion of Social Security and Medicare taxes, while the employer pays the employer portion. Employees may also receive benefits such as health insurance, paid time off, and retirement matching.

1099 contractor basics

Independent contractors generally pay self-employment tax and may need to make estimated tax payments. They may deduct ordinary and necessary business expenses, but they are also responsible for benefits, bookkeeping, and tax planning.

Comparing offers

A contractor rate often needs to be higher than an employee salary to produce similar after-tax income and benefits value. Use the calculator as a first-pass estimate, then review details with a tax professional.