1099 vs W-2 Tax Calculator

A rough rule: multiply your W-2 hourly rate by 1.25-1.40 to match net take-home as 1099. The premium covers the employer-side FICA (7.65%), self-employment tax overhead, lost benefits (health insurance ~$8,000/year, 401k match $3,000-$6,000, PTO ~$5,000), and business expenses. High earners can sometimes accept lower premiums thanks to the 20% QBI deduction.

Major losses for 1099: employer-paid half of FICA (7.65%), employer health insurance subsidies, 401(k) match, paid time off, sick days, employer-paid disability/life insurance, workers comp, unemployment insurance eligibility. Some are partly replaceable (SEP-IRA, ACA marketplace insurance) - others are not (paid sick leave, unemployment benefits).

The Section 199A Qualified Business Income deduction lets eligible pass-through businesses deduct up to 20% of qualified business income. Phase-out for single filers begins at $241,950 in 2026 (estimated) and fully phases out by $291,950 for SSTBs (specified service trades - consulting, law, health, accounting). For non-SSTBs, the full deduction is available up to the W-2-wages limit.

If a worker should legally be classified as W-2 but is paid 1099, the worker loses benefits and the company avoids payroll tax - a federal-state enforcement priority. The IRS 20-factor test focuses on behavioral control, financial control, and relationship. California, Massachusetts, and New Jersey use the stricter ABC test (the burden is on the company to prove all 3 prongs). Penalties for misclassification can be six-figure for the employer.