1099 vs W-2 Net Income Comparison
1099 contractor pays full self-employment tax (15.3%) but can deduct business expenses + SEP-IRA. W-2 has half FICA + employer benefits. This compares net.
| 1099 gross | — |
| Business expenses | — |
| SE tax | — |
| 1099 income tax | — |
| 1099 NET | — |
| W-2 FICA (half) | — |
| W-2 income tax | — |
| W-2 NET (incl benefits) | — |
| Winner | — |
1099 contractors pay full self-employment tax (15.3% on net SE income) and lose employer benefits, but gain business expense deductions and SEP-IRA up to 25% of net SE income. Typical rule: contractor needs 30-50% higher gross to net the same as W-2.
Self-Employment Tax Mechanics
Net SE income × 0.9235 × 15.3% = SE tax (12.4% Social Security + 2.9% Medicare). Half deductible above-the-line. For high earners, SS portion caps at $168,600 (2024) — Medicare uncapped.
Deductible Business Expenses
Home office (% of home), equipment (Section 179 immediate), software, travel, conferences, professional development, health insurance (above-the-line), retirement plan contributions, half of SE tax.
Retirement Plan Options
SEP-IRA: 25% of net SE income up to $69,000 (2024). Solo 401(k): $23,000 employee + 25% employer = up to $69,000. Defined benefit plan: $200K+ for older high earners. All beat employee 401(k) cap.
Benefits Equivalent Math
Health insurance: $15K-$25K family/yr (1099 deductible above-line). 401(k) match: typically 3-6% of salary. Bonus / RSUs. PTO / vacation. Disability + life insurance. Total benefits often 25-40% of W-2 base salary.
Last updated May 2026. Sources: IRS Self-Employed, SCORE Mentors.