Somebody hands you an offer. Maybe it's a full-time job with a W-2. Maybe it's a contract with a 1099. The number on the page looks fine either way, right up until you sit down and do the math and realize the two numbers aren't measuring the same thing at all.
Most articles on this topic start by explaining what a 1099 form is. You already know that part. Here's the part that changes your bank account.
The tax difference nobody mentions until it's too late
A W-2 job splits your Social Security and Medicare tax with your employer. Half comes out of your check, half gets paid by the company, and you never see it happen. A 1099 contract doesn't split anything. You pay both halves yourself: 15.3% of your net income, before federal income tax even enters the picture.
On $80,000 of contract income, that's somewhere around $11,000 gone before you've paid a cent toward your tax bracket. Nobody puts that number on the offer letter.
A real example, not a percentage
Say you're offered $70,000 salaried, or $85,000 as a 1099 contract doing the same work. That $15,000 gap looks like an easy win for the contract.
It isn't, automatically. The contract pays the full 15.3% self-employment tax instead of the W-2's 7.65%. There's no health insurance subsidy, no 401(k) match, no paid vacation. Run the numbers yourself and that $15,000 gap on paper often shrinks to a few thousand dollars once taxes and benefits are accounted for, sometimes less, depending on your health insurance cost and how many weeks you can realistically bill.
It can also go the other way. Business write-offs and the QBI deduction both reduce a contractor's taxable income in ways a W-2 salary can't touch, and if you can bill close to full-time hours, the gap holds up better than it looks like it should.
When the W-2 wins
- The benefits are genuinely good: solid health insurance, a 401(k) match worth having, paid time off that would otherwise cost you money to take.
- Your income needs to be predictable, not just larger on average.
- You'd rather not think about quarterly estimated taxes four times a year.
When the 1099 wins
- You can bill close to full-time hours, not a fraction of them padded out with slow weeks.
- You have real, deductible business expenses that would otherwise just be personal spending.
- The rate gap is large enough to survive the extra 7.65% in tax and still come out ahead.
What this doesn't cover: state tax
Every number above is federal only. State income tax sits on top of it, and it swings wildly depending on where you live. Texas, Florida, and Washington charge nothing on income at all. California tops out above 13% at the high end. Most of the country lands somewhere in between.
This matters more for the 1099 side of the decision than the W-2 side, since a contractor pays the full state tax bill on top of already covering both halves of the federal self-employment tax. In a high-tax state, the real gap between two offers narrows further than the federal math alone suggests. In a no-tax state, the numbers above are close to the whole picture already.
Before you compare the numbers: is the 1099 legal?
One thing worth checking before any of this math matters: is the job even allowed to be a 1099 role in the first place?
A company doesn't get to call a position a contract job just to save money on payroll tax. The IRS looks at the actual working relationship: who controls how and when the work gets done, who provides the equipment, whether it's a defined project or ongoing work indistinguishable from a regular job. If your "client" sets your hours, tells you exactly how to do the work, and expects you there indefinitely, that's a job, not a contract, no matter what the paperwork says.
This isn't a small technicality. A misclassified role means paying 1099-level tax costs for what should have been a W-2 job, without the flexibility that's supposed to come with contracting in exchange. If the arrangement feels more like employment than a contract, raise it directly with whoever's making the offer before you accept it, not after.
None of this is close enough to eyeball. The gap between a "good" 1099 rate and a "good" W-2 salary depends on your specific numbers, not a rule of thumb.
Compare your own offers →Frequently asked
Is taking a 1099 job ever just a mistake?
Yes, when the rate isn't high enough to cover the extra tax and lost benefits, and nobody did the math before accepting. A 1099 offer that's only 5-10% above the equivalent salary is usually a bad trade once you account for self-employment tax alone.
What if I don't know how many hours I'll get?
Then that uncertainty is itself the biggest risk in taking the contract, bigger than the tax math. A 1099 rate only pays for hours billed. If the hours aren't guaranteed, run the numbers at a conservative estimate, not the best-case one.
Does a signing bonus or equity change this math?
It changes the total value of the W-2 offer, but not the tax mechanics described here. Add the bonus to the salary before comparing, and treat equity separately since it's illiquid and not guaranteed the way cash is.