As a W-2 employee, your employer withholds taxes from each paycheck and pays half of your Social Security and Medicare. As a 1099 contractor, nothing is withheld, and you pay both halves of those taxes yourself as self-employment tax. On the same income, that usually leaves a 1099 worker with less take-home pay unless their rate is higher.
This 1099 vs W2 comparison runs the same $80,000 through both setups using 2026 figures, then covers the parts that don't show up in a tax calculation, like benefits and business expenses.
The basic difference
| Item | W-2 employee | 1099 contractor |
|---|---|---|
| Tax form you receive | Form W-2 | Form 1099-NEC (or 1099-K) |
| Income tax withheld | Yes, based on your W-4 | No |
| Social Security and Medicare | 7.65% from you, 7.65% from employer | 15.3% self-employment tax, all from you |
| How you pay tax during the year | Automatic withholding | Quarterly estimated payments |
| Business expense deductions | Generally not deductible | Deductible against business income |
| Benefits and overtime | Often included; non-exempt workers get FLSA overtime | Generally none |
Whether you are an employee or a contractor depends on how the work is actually controlled, not just on the label the company uses. The Department of Labor and the IRS both have rules on worker classification.
1099 vs W-2 side by side: $80,000 in Arizona
Take a single filer in Arizona earning $80,000 for the year. Arizona taxes income at a flat 2.5% with a standard deduction of $8,350 for single filers.
As a W-2 employee
The PaycheckHubs paycheck calculator estimates, for a biweekly salary of $80,000:
- Federal income tax: about $8,770
- Social Security: about $4,960
- Medicare: about $1,160
- Arizona income tax: about $1,791
- Take-home pay: about $63,319 for the year, or $2,435 per paycheck
As a 1099 contractor with $80,000 net profit
Self-employment tax is 15.3% of 92.35% of net earnings: $80,000 times 92.35% is $73,880, and 15.3% of that is $11,303.64. Half of that, $5,651.82, is deductible, which brings adjusted gross income to $74,348.18. Running that amount through the calculator for income tax gives:
- Self-employment tax: about $11,304
- Federal income tax: about $7,527
- Arizona income tax: about $1,650
- Take-home: about $59,520 for the year
The comparison
| Annual estimate | W-2 at $80,000 | 1099 at $80,000 net |
|---|---|---|
| Social Security and Medicare | $6,120 | $11,304 |
| Federal income tax | $8,770 | $7,527 |
| Arizona income tax | $1,791 | $1,650 |
| Total tax | $16,681 | $20,480 |
| Take-home | $63,319 | $59,520 |
On the same $80,000, the contractor keeps about $3,800 less. The 1099 figures leave out the qualified business income deduction, which many self-employed people can claim and which would lower income tax further, and they assume the $80,000 is profit after business expenses. Treat these as estimates and check with a tax professional for your own situation.
What the tax math leaves out
Benefits
W-2 jobs often come with health insurance, a 401(k) with an employer match, paid time off and unemployment insurance coverage. A contractor pays for these or goes without. For 2026, an employee can defer up to $24,500 into a 401(k). Self-employed people have their own retirement plan options, which a tax professional can explain.
The employer's share of FICA
For the $80,000 employee, the employer also pays its own 7.65%, about $6,120, on top of salary. That cost is part of why companies may offer a higher rate to contractors.
Business expenses
Contractors can deduct ordinary and necessary business expenses, like equipment, software and business mileage. Those deductions reduce both income tax and self-employment tax. Employees generally can't deduct unreimbursed work expenses on their federal return.
Overtime
Non-exempt W-2 employees must be paid at least 1.5 times their regular rate for hours over 40 in a workweek under the federal Fair Labor Standards Act. Contractors aren't covered by that rule.
How to compare a 1099 rate with a W-2 salary
To make a fair comparison, the contractor rate needs to cover the extra 7.65% of payroll tax, the benefits you would lose, and unpaid time such as holidays, sick days and gaps between clients. A practical approach:
- Estimate your W-2 take-home with the paycheck calculator.
- Add the yearly value of benefits you would give up, such as the employer's health premium share and 401(k) match.
- Estimate how many hours you would actually bill in a year.
- Work out the contractor income that leaves you with the same amount after self-employment tax, income tax and expenses.
Our guide to comparing job offers has more on putting a value on benefits.
Paying taxes as a 1099 worker
Because nothing is withheld, contractors usually make quarterly estimated tax payments to cover income tax and self-employment tax. Missing them can mean a large bill and possible penalties at filing. See quarterly estimated tax payments and self-employment tax explained for the details.
State income tax applies to contractors too, except in the nine states without a wage tax. You can compare state rates on the Arizona paycheck calculator, the Nevada paycheck calculator or any state in the state directory.
Frequently Asked Questions
Do 1099 workers pay more taxes than W-2 workers?
On the same income, usually yes, because contractors pay both halves of Social Security and Medicare. Business deductions and the deduction for half of self-employment tax narrow the gap.
Can I be both W-2 and 1099 in the same year?
Yes. Many people have a W-2 job and freelance income. You report both on one tax return, and your W-2 wages count toward the Social Security wage base first.
Does a 1099 contractor get a W-4?
No. A W-4 is for employees. Contractors usually give the client a Form W-9 with their taxpayer identification number instead.
What hourly rate should a contractor charge to match a salary?
There is no single multiplier. It depends on benefits, expenses and billable hours, so work through the numbers for your situation.
Sources
- IRS: Self-Employment Tax
- IRS Topic 751, Social Security and Medicare Withholding Rates
- U.S. Department of Labor: Fair Labor Standards Act
- Tax Foundation: State Income Tax Rates 2026
Run the numbers for your state
Written and checked against IRS, Social Security Administration and state tax agency publications for the 2026 tax year. General information, not tax, legal or financial advice. Read our editorial policy, calculation methodology and sources.