Payroll
1099 vs W-2: what each one actually costs you
A W-2 hire costs more than the salary. This works out the fully loaded number, and the contractor rate it breaks even against.
A W-2 hire costs more than the salary. This works out the fully loaded number, and the contractor rate it breaks even against.
Employer cost only — this does not compute anyone's take-home pay. Federal rates are as published for 2026 (Social Security 6.2% to $184,500, Medicare 1.45% uncapped, FUTA 0.6% after the full state credit on the first $7,000). State unemployment rate and wage base vary, so both are inputs. Cost is not the test for worker classification: the IRS applies a common-law control test, and several states apply a stricter ABC test. Getting that wrong costs far more than the gap below.
A salary is not what an employee costs. On top of base pay an employer owes its share of Social Security and Medicare, federal and state unemployment tax, and whatever benefits it offers. A contractor costs the invoice and nothing else. The calculator above prices both sides so you can see the real gap before you decide how to hire.
Most calculators that rank for this phrase compute the worker's take-home. That is a different question. If you are pricing a role, what you need is the employer's total, and the contractor rate at which the two are equal.
| Cost | 2026 rate | Applies to |
|---|---|---|
| Social Security | 6.2% | First $184,500 of wages |
| Medicare | 1.45% | All wages, no cap |
| FUTA (federal unemployment) | 0.6% after the full state credit | First $7,000 of wages |
| SUTA (state unemployment) | State-set, often 2.7-3.4% for a new employer | A state-set wage base |
| Benefits | Whatever you offer | Health, dental, retirement match |
The federal rates are fixed and published. The state piece is not: both the rate and the wage base vary, and a new employer is usually assigned a standard starting rate until it has a claims history. Put your own assigned rate into the calculator rather than the default.
The Additional Medicare Tax of 0.9% applies to an employee's wages above $200,000. The employer withholds it but does not match it, so it is not an employer cost and is deliberately left out of the arithmetic above.
Two of the four payroll taxes stop early. FUTA applies to the first $7,000 of wages and most state unemployment wage bases are under $15,000, so both are fully paid within the first few months of the year. Social Security stops at $184,500. Only Medicare runs on every dollar.
That is why the percentage load falls as salary rises. At $60,000 the employer tax load is about 8%; at $250,000 it is closer to 6%, because the capped taxes have run out. A flat rule of thumb like add 20% for payroll taxes is wrong in both directions.
Cost is not the test. Whether someone may be a contractor at all turns on control, not on what either side would prefer. The IRS applies a common-law test that looks at behavioural control, financial control and the nature of the relationship. Several states, California among them, apply a stricter ABC test where the worker is presumed to be an employee unless all three conditions are met.
Misclassification is assessed with back taxes, interest and penalties, and it is typically discovered during diligence or an unemployment claim, at which point it is a financing problem rather than a payroll problem. If the gap above is what is driving the decision, the decision is being made on the wrong variable.
Payroll, contractor payments and the filings that follow them sit inside one finance function here, so a contractor who becomes an employee does not fall between two vendors. See payroll, or how startups automate tax filing for the wider filing calendar.
This calculator is educational and general. It is not tax, legal, or accounting advice and creates no client relationship. Worker classification depends on facts specific to the engagement and on state law. Confirm your position with a qualified professional before relying on it.
Where these numbers come from