W-2 vs. 1099: what changes your take-home
A W-2 salary and a 1099 contract rate are taxed differently and come with different benefits. Here is what changes your take-home under each.
What is withheld
On a W-2, the employer withholds income tax and your share of Social Security and Medicare before you are paid. On a 1099, nothing is withheld — you are paid the full amount and owe the tax yourself. A 1099 rate and a W-2 salary are therefore not the same kind of number.
Self-employment tax
A W-2 employee pays 7.65% of pay toward Social Security and Medicare, and the employer pays a matching 7.65%. A 1099 contractor pays both halves — the 15.3% self-employment tax, on 92.35% of net profit — because there is no employer paying the other side. One half of that tax is deductible against income tax. In both cases the Social Security portion (6.2% as an employee, 12.4% self-employed) applies only up to the annual wage base — $184,500 in 2026 — while the Medicare portion applies to every dollar. (IRS: Self-Employment Tax; Social Security Administration.)
Benefits a W-2 job may include
Pay is one part of an offer. A W-2 job often includes benefits a 1099 role does not: the employer commonly pays a share of the health-insurance premium, with the employee's share taken pre-tax; a 401(k) match is employer-paid compensation on top of wages; and paid time off is days paid without working. Employee status also generally carries unemployment insurance and workers' compensation. A 1099 contractor funds these independently. (U.S. Department of Labor.)
What a contractor deducts
A contractor is taxed on profit, not gross pay, so the costs of doing the work — supplies, licensing, insurance, mileage, work gear — are subtracted first. Self-employment income also qualifies for the 20% qualified business income (QBI) deduction, which applies to profit from self-employment, and the self-employed health-insurance deduction. Wage income qualifies for neither. (IRS.)
Nothing is withheld from a 1099 payment
Because no tax is withheld, a 1099 worker pays the IRS directly through quarterly estimated tax payments (Form 1040-ES). The W-2 vs 1099 calculator returns the amount to reserve per paycheck from your own figures, and what to set aside for taxes covers the mechanics.
Classification is set by how you work
Whether a worker is a W-2 employee or a 1099 contractor is determined by the working relationship, not by the contract signed. If a company sets the schedule, provides the tools, and directs how the work is done, the worker is likely an employee under IRS and Department of Labor tests. A misclassified worker loses overtime, unemployment, and workers' compensation. IRS Form SS-8 requests an official determination of worker status, and Form 8919 lets a misclassified worker pay only the employee half of Social Security and Medicare.
Related
Estimates for planning, not tax advice.