W-2 Employee
1099 Contractor
What is the difference between W-2 and 1099?
A W-2 employee has taxes withheld by their employer, receives benefits (health insurance, retirement, PTO), and the employer pays half of FICA (7.65%). A 1099 independent contractor pays both halves of FICA (15.3% SE tax), handles their own benefits, but can deduct business expenses and has more tax planning flexibility.
Who pays FICA as a contractor?
As an independent contractor (1099), you pay both the employee and employer portions of FICA through self-employment tax: 12.4% for Social Security (on earnings up to $176,100) and 2.9% for Medicare. This totals 15.3%, compared to only 7.65% that a W-2 employee pays. However, you can deduct half of SE tax from your AGI.
What are the benefits of each arrangement?
W-2 employees get stable income, employer-paid benefits, unemployment insurance, and simpler tax filing. 1099 contractors get higher gross pay potential, business expense deductions, retirement account flexibility (SEP IRA, Solo 401k), schedule flexibility, and the QBI deduction (20% under Section 199A). The best choice depends on your financial situation and career goals.
Important: This comparison assumes the same gross amount for both arrangements. In practice, contractors often negotiate higher rates to compensate for self-employment tax and lack of benefits. Benefits value is estimated at 15% of salary.
Disclaimer: This calculator provides estimates based on current IRS rates and thresholds for the 2025 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your filing status, state of residence, deductions, and individual circumstances. Always consult a qualified tax professional or CPA before making financial decisions. Read our terms
This calculator uses official rates and thresholds from:
- IRS — Independent Contractor vs. Employee
- IRS Form 1099-NEC — Nonemployee Compensation
- IRS Publication 15 (Circular E) — Employer's Tax Guide
Last verified: March 2026 · Tax year 2025. Results are indicative — consult a qualified accountant for personalised advice.