A $60-an-hour contract offer sounds like a big step up from a $90,000 salary, since that salary works out to roughly $43 an hour. But a W-2 salary comes with a lot of value that never shows up in the number on the offer letter, and a 1099 rate comes with costs that are easy to forget until your first quarterly tax payment is due.
The employer half of payroll tax
As an employee, your employer pays 7.65% in Social Security and Medicare taxes on top of your salary. As a contractor, you pay the full 15.3% self-employment tax yourself. That alone means a contract rate needs to be meaningfully higher than an equivalent hourly wage just to break even.
Benefits you would have to replace
Put a dollar value on everything the W-2 job includes, because as a contractor you will be buying it yourself or going without.
- Health, dental, and vision insurance premiums the employer subsidizes
- Retirement plan matching contributions
- Paid time off and paid holidays
- Disability and life insurance, equipment, software, and training budgets
Billable hours are not working hours
Contractors rarely bill 2,080 hours a year. Time spent finding clients, invoicing, and doing admin is unpaid, and gaps between contracts are common. Estimating realistic billable hours, often somewhere between 1,000 and 1,600 a year for independent workers, gives a much more honest annual figure than multiplying the hourly rate by a full-time schedule.
What contractors gain in return
Contracting has real advantages: business expense deductions, access to higher-limit retirement plans like a Solo 401(k), and the potential for an S-corp election at higher incomes. Flexibility and multiple income sources also count for something that is hard to put a number on.
Compare total compensation, not headline numbers
A common shortcut is that a contract rate should be roughly 1.3 to 1.5 times the equivalent salaried hourly rate to come out even, but your own benefits and hours will move that figure. A 1099 vs. W-2 calculator that accounts for taxes, benefits, and billable hours gives you a side-by-side view of what each offer is actually worth.
This article is for general education only and is not tax or legal advice. Tax rules vary by jurisdiction, change over time, and depend on your specific situation. Talk to a qualified tax professional before making filing or payment decisions.