W-2 vs 1099
which pays more?

Self-Employment Tax: The Key Difference

W-2 employees split FICA taxes with their employer. Each pays 7.65% — 6.2% for Social Security and 1.45% for Medicare. As a 1099 contractor, you pay both sides yourself: the full 15.3%.

On $100,000 of net self-employment income, that's roughly $14,130 in self-employment tax — on top of your regular federal and state income tax. This is why contractors need to charge significantly more than a comparable W-2 salary just to match take-home pay.

The one small offset: you can deduct half of self-employment tax above the line, which reduces your taxable income slightly. But it doesn't close the gap — it just narrows it.

What W-2 Benefits Are Actually Worth

A gross salary comparison misses the full picture. W-2 employment typically includes benefits with real dollar value that don't appear in a pay stub:

• Health insurance: Employers typically contribute $500–$800/month toward family premiums — $6,000–$9,600/year you don't pay out of pocket.
• 401(k) match: The average employer matches 3–4% of salary. On $80,000, that's $2,400–$3,200/year in free retirement contributions.
• Paid time off: Two weeks of PTO on a $70,000 salary is roughly $2,700 in paid leave you wouldn't have as a contractor.

Total W-2 benefit value can easily exceed $15,000–$25,000/year. This calculator covers the tax gap — but remember to factor in benefits when evaluating the full value of each arrangement.

Tax Deductions That Help 1099 Contractors

Being your own boss comes with tax advantages. As a self-employed contractor you may be able to deduct:

• Home office: A dedicated workspace allows you to deduct a proportional share of rent, utilities, and internet.
• Equipment and software: Computers, monitors, and business subscriptions are typically deductible.
• Health insurance premiums: If you pay your own health insurance and aren't eligible for employer coverage, premiums are deductible above the line.
• Retirement contributions: Solo 401(k) and SEP-IRA contributions can reduce taxable income significantly — up to $69,000 in 2026 for a solo 401(k).

These deductions won't eliminate the self-employment tax gap, but they do narrow it — sometimes substantially if you have significant business expenses.

Frequently Asked Questions