The hidden tax gap
1099 vs. W-2: who really pays more?
The headline difference is payroll tax. A W-2 employee pays half of FICA — 6.2% Social Security and 1.45% Medicare — while the employer pays the other half. A 1099 contractor is both employer and employee, so they owe the full 15.3% self-employment tax. That's the single biggest reason a contractor needs a higher rate to come out even.
Worked example: $100,000
As a W-2 employee on $100,000, your share of FICA is $7,650. As a 1099 contractor netting $100,000 of profit, self-employment tax runs about $14,130 — calculated on 92.35% of profit at 15.3%. That's roughly $6,480 more in payroll tax. The IRS lets you deduct half of SE tax (about $7,065) from income, which softens the blow but doesn't erase it.
What 1099 contractors gain
It's not all downside. Contractors can deduct legitimate business expenses, may qualify for the Qualified Business Income (QBI) deduction, and can use a Solo 401(k) or SEP-IRA with far higher limits than a workplace plan. Enter your expected expenses above to see how deductions narrow the gap.
Dig into the SE-tax math
For a full breakdown of the 15.3% self-employment tax and the 92.35% base, use the self-employment tax calculator.
Questions
1099 vs W-2 FAQ
Do 1099 contractors pay more tax than W-2 employees?
On payroll tax, yes. A W-2 employee pays only their half of FICA (7.65%) while the employer pays the rest. A 1099 contractor pays the full 15.3% self-employment tax. On $100,000, that is roughly $14,130 in SE tax versus $7,650 in employee FICA.
What 1099 rate equals a W-2 salary?
As a rule of thumb, a 1099 contractor needs about 25%–35% more than an equivalent W-2 salary to match take-home, because they pay the employer half of FICA and lose benefits. The exact gap depends on income, expenses and the value of the benefits you give up.
Can 1099 contractors deduct half their self-employment tax?
Yes. The IRS allows you to deduct one half of your self-employment tax from your gross income when calculating income tax. On about $14,130 of SE tax, that is roughly a $7,065 deduction, which lowers your income-tax bill.
What benefits do 1099 contractors lose versus W-2?
1099 contractors typically forgo employer-paid health insurance, paid time off, a 401(k) match, unemployment insurance and workers compensation. They gain flexibility, the ability to deduct business expenses, and access to higher-limit retirement plans like a Solo 401(k) or SEP-IRA.
- Sources: IRS Rev. Proc. 2025-32 (2026 brackets & standard deduction) · SSA 2026 OASDI wage base ($184,500) · IRS Topic No. 751.
- 🔄 Last updated June 21, 2026 · Tax year 2026
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