Is 1099 or W-2 better for taxes?

Neither is automatically better. As a W-2 employee you pay only half of Social Security and Medicare tax (7.65%) and your employer pays the rest; as a 1099 contractor you pay all 15.3% of self-employment tax yourself. But contractors can deduct business expenses and usually claim the 20% qualified business income (QBI) deduction, which W-2 employees can't. The net result depends on your rate, expenses, and state.

How much higher should a 1099 rate be than a salary?

As a rough guide, a 1099 rate usually needs to be 25% to 50% higher than the equivalent salary to leave you with the same spendable income, because you now cover the employer half of payroll tax, your own health insurance, retirement, and unpaid time off. The exact 'make you whole' rate depends on the specific benefits you'd be giving up.

Do I get the QBI deduction as a 1099 contractor?

Usually yes. Most self-employed people can deduct up to 20% of their qualified business income under Section 199A. Above the income thresholds ($197,300 single / $394,600 married filing jointly for 2026), specified service businesses begin to phase out of the deduction. W-2 employees do not get the QBI deduction on their wages.

Can I deduct health insurance premiums as a 1099 worker?

Yes. Self-employed people can generally deduct health insurance premiums for themselves and their family as an adjustment to income, which lowers income tax. Note it does not reduce self-employment tax, and the deduction is limited to your net self-employment profit.

Is a 1099 job worth losing benefits?

It depends on what the benefits are worth to you. Employer-paid health insurance, a 401(k) match, and paid time off can easily total 20–30% on top of a salary. A 1099 role is worth it when the higher rate more than covers replacing those benefits and you value the flexibility and write-offs. Run both offers through a calculator that accounts for benefits to compare them honestly.

1099 vs W-2: which is actually better for you?

A $130,000 contract and a $100,000 salary are not as far apart as they look — and sometimes the salary wins. The honest comparison isn't rate vs. salary; it's what you keep after taxes once you account for everything an employer was quietly paying on your behalf.

Last reviewed: June 2026 · Figures shown for the 2026 tax year

The quick answer

Neither is universally better. W-2 employment trades a lower headline number for security and subsidized benefits: your employer pays half your payroll tax, chips in for health insurance and retirement, and gives you paid time off. 1099 contracting trades that safety net for a higher rate, valuable tax deductions, and flexibility — but you fund the benefits and absorb the risk yourself.

The mistake is comparing the two top-line numbers directly. To know which offer is better, you have to find the contract rate that leaves you with the same spendable income after taxes and benefits as the salary. That's the only apples-to-apples comparison.

What you give up as a 1099 (the hidden paycheck)

A salary comes with an invisible second paycheck your employer pays so you never see it. When you go 1099, that paycheck disappears and the costs land on you:

The employer half of payroll tax. Employees pay 7.65% toward Social Security and Medicare; the employer pays a matching 7.65%. As a contractor you pay the full 15.3% self-employment tax yourself.
Health insurance. Employers cover a large share of premiums — averaging around $8,000 a year for single coverage and far more for a family. On your own, you buy a marketplace plan at full freight.
Retirement match. A typical 401(k) match is about 4% of salary — free money you forfeit and must replace from your own pocket to retire on the same track.
Paid time off. Vacation, holidays, and sick days are paid for an employee. A contractor who doesn't work doesn't bill — so your effective hourly rate has to absorb those unpaid weeks.
The safety net. Unemployment insurance, employer-paid disability and life coverage, and steady, predictable income all go away.

What you gain as a 1099

It isn't all cost — contracting comes with real financial upside that salaried employees can't touch:

The QBI deduction. Most self-employed people deduct up to 20% of their qualified business income under Section 199A before income tax — a break W-2 wages don't get. Above $197,300 (single) or $394,600 (married filing jointly) for 2026, specified service businesses start to phase out.
Real business write-offs. Home office, equipment, software, a portion of your phone and internet, professional development, mileage — all lower your taxable profit. An employee generally can't deduct unreimbursed job costs at all.
A higher gross rate and leverage. Contractors typically command more per hour, can work for multiple clients, and can scale into an agency or raise rates in a way a fixed salary doesn't allow.
Flexibility. Control over your schedule, clients, and where you work — worth a lot to some people and little to others.

The "make you whole" rate

Put it together and a contract rate has to clear a meaningful bar before it actually beats a salary. As a rough guide, a 1099 rate usually needs to be 25–50% above the equivalent salary to leave you with the same money in hand — the low end if the job had thin benefits, the high end if it came with generous health coverage, a strong match, and lots of paid time off.

$100,000 salary — what an equivalent contract looks like

Add the employer's hidden paycheck — roughly $7,650 in payroll tax, ~$8,000 of health insurance, a ~$4,000 retirement match, plus a few weeks of paid time off — and a $100,000 salary really costs your employer well over $120,000 in total compensation. To match it, a contractor generally needs to bill in the $125,000–$150,000+ range (very roughly $65–$80/hour on full-time hours), since they must also cover the extra payroll tax and unpaid time off out of that figure.

The exact break-even depends entirely on the specific benefits in play, which is why a calculator that models them beats any rule of thumb. Don't forget the part that's not on the spreadsheet, either: stability, flexibility, and how much you value being your own boss.

Compare your two offers honestly

Have a salary and a contract rate in front of you? Our free 1099 vs W-2 calculator finds the contract rate that truly matches the salary — after self-employment tax, the QBI deduction, and the health, retirement, and time-off benefits you'd be replacing. Everything runs in your browser.

Compare the offers →

Frequently asked questions

Is 1099 or W-2 better for taxes?: Neither automatically. A W-2 employee pays only half of payroll tax (7.65%); a 1099 contractor pays the full 15.3% self-employment tax — but can deduct business expenses and usually claim the 20% QBI deduction, which employees can't. The winner depends on your rate, expenses, and state.
How much higher should a 1099 rate be than a salary?: As a rough guide, 25–50% higher than the equivalent salary, because you now cover the employer half of payroll tax, your own health insurance and retirement, and unpaid time off. The exact figure depends on the benefits you'd give up.
Do I get the QBI deduction as a contractor?: Usually yes — up to 20% of qualified business income under Section 199A. Above the 2026 thresholds ($197,300 single / $394,600 MFJ), specified service businesses phase out. W-2 wages don't qualify.
Can I deduct health insurance as a 1099 worker?: Yes — self-employed health insurance premiums are an adjustment to income that lowers income tax (but not self-employment tax), limited to your net business profit.
Is a 1099 job worth losing benefits?: It's worth it when the higher rate more than covers replacing employer-paid health insurance, the retirement match, and paid time off — which together can add 20–30% on top of a salary — and you value the flexibility and write-offs.