1099 vs. W2, from the worker's side
Nearly every guide to this decision says the same three things: 1099 pays more taxes, W2 gets benefits, it depends. None of them show the actual math a worker needs to negotiate a fair 1099 rate. This one does.
The question nobody answers with numbers
A worker gets two offers for what is genuinely the same role: $75,000 as a W2 employee, or a 1099 arrangement. Every article on this topic explains that 1099 pays more self-employment tax and gets no employer benefits, then stops short of the one number that actually matters: what 1099 rate makes the two offers equal. Without that number, a worker is negotiating blind.
Start from the employer's real cost, not the salary
A $75,000 salary is never what the role actually costs the employer. Add employer-side payroll tax, a retirement match, and the employer's share of health insurance, and the true cost is meaningfully higher. This is the same fully loaded cost concept covered on the true cost of an employee calculator, just applied from the worker's side of the table instead of the employer's.
$92,838, not $75,000, is what the employer is actually willing to spend on this role. A rational starting point for a fair 1099 rate is close to this number, since the employer no longer has to cover any of these costs once the relationship shifts to a contractor.
What the worker has to self-fund
Receiving that $92,838 as a 1099 rate doesn't mean keeping all of it. The worker now has to cover, out of that same figure, everything the employer used to handle directly.
A 1099 worker owes the full 15.3% SE tax instead of the 7.65% a W2 employee has withheld, the extra 7.65% is the employer's half. Half of the total SE tax is deductible against income tax, so the real net cost is smaller than the raw 7.65% gap.
The full premium the employer used to partially cover, now paid entirely out of pocket, minus what can be recovered through the self-employed health insurance deduction.
No automatic match arrives; matching the value of the employer contribution requires actively setting money aside into a self-employed retirement account.
The full worked comparison
$75,898, within a few hundred dollars of the original $75,000 salary. That closeness isn't a coincidence; it's confirmation that anchoring the 1099 rate to the employer's fully loaded cost, rather than the bare salary, produces a genuinely fair equivalent. A 1099 offer at $80,000, well above the $75,000 salary but well below the $92,838 fair rate, looks generous and actually leaves the worker worse off once these costs are counted.
"They're offering more than my old salary" and "they're offering more than my old salary actually cost them" are two very different claims, and only the second one means the 1099 offer is genuinely competitive.
The quarterly tax problem nobody warns you about
A W2 paycheck already has taxes withheld; a 1099 payment doesn't. The IRS requires quarterly estimated tax payments, due in mid-April, June, September, and January, and underpaying a quarter can trigger a penalty even if the full amount gets paid correctly by the following April. This is a cash-flow and discipline problem more than a tax problem: the money for that September payment has to still be sitting in an account in September, not already spent on the assumption that the whole 1099 rate was take-home pay. Setting aside a fixed percentage of every incoming payment, into a separate account, the moment it arrives is the most reliable way to avoid a scramble each quarter.
The one genuine 1099 upside: retirement contributions
A Solo 401(k) lets a self-employed worker contribute as both employee and employer to the same plan, a real, verifiable advantage over a standard W2 401(k). On the $92,838 in 1099 income from the example above: $24,500 as the employee-side deferral, plus 25% of net earnings as the employer-side contribution.
Nearly double, and this is the one place where the 1099 math genuinely favors the worker rather than just offsetting a cost, provided the income and the discipline to actually contribute that much are both there. The 2026 combined Solo 401(k) cap is $72,000, so this advantage grows further at higher income levels before eventually hitting that ceiling.
A simple negotiation script
When a 1099 rate is offered as a replacement for a known W2 salary, ask directly what the employer's previous fully loaded cost was, including the match and the health insurance contribution, not just the salary. If that figure isn't available, estimate it using the same components in the table above: salary, 7.65% employer payroll tax, whatever retirement match existed, and the employer's share of the health premium. A 1099 rate meaningfully below that combined figure is a pay cut dressed up as a raise, even when the number on the offer looks bigger than the old salary.
For the reverse calculation, comparing a company's cost of a new W2 hire against a contractor rate directly, see the employee vs. contractor calculator, which runs this same comparison from the hiring side.
Frequently asked questions
Start from the employer's fully loaded cost of the W2 role, not the bare salary: add employer payroll taxes (7.65%), any 401(k) match, and the employer's share of health insurance. That total, converted to an hourly or annual rate, is the fair 1099 comparison point, not the salary alone.
Yes, in gross terms; a 1099 worker pays the full 15.3% self-employment tax (Social Security and Medicare) versus a W2 employee's 7.65% withheld share. Half of that extra amount is deductible against income tax, which softens the net difference somewhat, but a real gap remains.
Often yes, if their income supports it. A Solo 401(k) allows a self-employed worker to contribute as both employee and employer, up to $72,000 total in 2026, meaningfully more than most W2 employees can put away through a standard 401(k) and employer match.
Through quarterly estimated tax payments, due in mid-April, June, September, and January, rather than automatic paycheck withholding. Missing or underpaying a quarter can trigger an IRS penalty, so many 1099 workers set aside a fixed percentage of each payment as it arrives.
It depends on whether the rate offered actually accounts for the taxes, benefits, and unpaid time off a W2 role would have covered. A 1099 rate that's only marginally higher than an equivalent W2 salary is usually a worse deal once those gaps are counted; a rate built up from the employer's fully loaded cost is a fairer comparison.
Run the employer-side version of this comparison on the employee vs. contractor calculator, or see the fully loaded cost breakdown on the true cost of an employee calculator.