1099 vs W-2 Calculator: Convert a W-2 Salary to a 1099 Rate

October 16, 2026 · Freelance and creator rates

To convert a W-2 salary to a 1099 rate, add up everything the job pays you - salary, the benefits paid in money, and the employer’s half of Social Security and Medicare - add your own business costs, and divide by the hours a client will actually pay for, not the hours in a full-time year. In the illustrative example below, a W-2 offer of $85,000 is $40.87 an hour on paper, and the contract rate that matches it is $76.60 an hour - 1.87 times the W-2 hourly rate. Taxes are a smaller part of that gap than they look. Unbilled time is the larger part.

The formula

1. Revenue to match the job = salary + benefits paid in money + employer’s half of Social Security and Medicare + your business costs
2. Billable hours a year = billable hours a week x (52 - weeks you will not bill)
3. Matching 1099 rate = revenue to match the job / billable hours a year

The W-2 hourly rate that people compare against is salary / 2,080 (a full-time week every week of the year). That divisor is the trap: it counts paid holidays and vacation as working hours. As a contractor, no client pays for the week you take off, the afternoon you spend sending invoices, or the gap between two clients.

Worked example: a W-2 offer of $85,000

These inputs are illustrative, not market salaries, premiums or rates.

The employer’s half of Social Security and Medicare is 7.65% of the salary (6.2% Social Security plus 1.45% Medicare, IRS Publication 926, 2026), which comes to $6,502.50 here. An employer pays it on top of your W-2 salary; as a contractor you pay both halves yourself through self-employment tax, so the employer’s half belongs in the target. Paid time off is not in the table: it is already inside the salary, and the formula accounts for it by spreading the target over fewer weeks.

Now the hours. Say you bill 30 hours a week - the rest of a working week goes on sales, admin and bookkeeping - and take 6 weeks a year without billing, for vacation, holidays, sick days and gaps between contracts. That is 46 weeks x 30 hours = 1,380 billable hours.

Matching rate = $105,702.50 / 1,380 = $76.60 an hour.

Against the job’s $40.87 an hour ($85,000 / 2,080), that is a multiple of 1.87.

Billable hours move the rate more than tax does

Here is the same offer of $85,000, same benefits, same costs, with only the billable hours changed:

Going from 30 billable hours a week to 40 a week cuts the matching rate by $19.15 an hour. Removing the employer’s half of Social Security and Medicare from the target entirely would cut it by only $4.71 an hour. The hours are worth 4.1 times as much as the payroll tax in this example.

Even at 40 billable hours a week, the matching rate is $57.45, still above the $40.87 the salary works out to, because the benefits and your business costs do not go away. And at 20 billable hours a week, $114.89 is what it takes. If you are converting a W-2 salary to a 1099 rate, the number to get right first is how many hours a client will pay for, not the tax rate. The freelance hourly rate calculator works through the billable share one correction at a time.

1099 vs W-2 taxes: self-employment tax, worked

On a W-2 you pay 7.65% of your wages to Social Security and Medicare and your employer pays the same again. On a 1099 you pay both halves as self-employment tax: 12.4% Social Security plus 2.9% Medicare, 15.3% in all. But Schedule SE applies that rate to 92.35% of your net profit, not to all of it, and the Social Security part stops at the wage base - $184,500 for 2026, per IRS Publication 926.

On an illustrative $90,000 of net profit (revenue minus business costs):

That is 14.13% of profit, not 15.3%. Half of it, $6,358.30, is deductible when you work out income tax (it does not reduce the self-employment tax itself). Above $199,783 of profit, the taxed share passes the wage base, the Social Security part stops growing, and only the 2.9% Medicare part continues.

Income tax is a separate bill on top, and it depends on your whole return - filing status, deductions, credits, other income - so it is not computed here. Self-employment tax is due even in a year with no income tax.

The insight: “the same hourly rate” is about half a job

The comparison that goes wrong is a contract offered at roughly the W-2 hourly rate. Take $41 an hour against the job’s $40.87. It sounds equal. Billed 30 hours a week for 46 weeks:

The contract comes to 51% of the job - $43,688.11 a year short - before income tax touches either side. The rate was never the problem; the hours and the missing benefits were.

Three things the arithmetic leaves out, which you should weigh on top:

• What you would pay to replace the benefits. The table values health cover at what the employer paid. Buying it yourself can cost a different amount.
• Classification. Whether work can be paid on a 1099 at all depends on how it is controlled, not on what either side prefers. The IRS publishes guidance on worker classification.
• Risk. A contract can end with little notice. The weeks-off input is where you price that in.

How these were calculated

The matching rate is salary plus benefits paid in money plus the employer’s half of Social Security and Medicare plus business costs, divided by billable hours a week times billable weeks. Adding the employer’s half approximates the extra self-employment tax a contractor pays; the self-employment tax section computes it exactly, Schedule SE style: 92.35% of net profit, 12.4% Social Security up to the $184,500 wage base, 2.9% Medicare on all of it. The 2026 wage base and the 6.2% and 1.45% employer rates are from IRS Publication 926 (2026); the 15.3% rate and the 92.35% share are from IRS Schedule SE and its instructions. The 0.9% Additional Medicare Tax on high earnings is left out.

Every figure on this page was computed twice - once by the code behind the calculator pack below, once by a separate implementation written from the formulas - and the two agree to the cent. The salary, benefits, business costs, billable hours, weeks off, profit and contract rate are illustrative, not market rates or typical figures for any job. Your own numbers will give a different rate. None of this is financial, legal or tax advice; for your own return, a tax professional and the IRS instructions are the authorities.

If you want to run this on your own offer - salary to hourly, what the benefits are worth, the matching rate, self-employment tax, a quarterly set-aside and the employer’s side of the same decision - the pack below does it in linked spreadsheets with every formula visible.