W2 Equivalent Rate Calculator
Convert your 1099 Contract Rate to an Equivalent W2 Salary
How to Calculate W2 Rate from Contract Rate
Calculating a W2 rate equivalent from a 1099 contract rate is crucial for freelancers and independent contractors considering full-time employment offers. The raw numbers often look different because W2 employment includes hidden financial perks that contractors must pay for themselves.
The W2 vs. 1099 Formula
To accurately compare a contract rate to a W2 salary, you must account for three main factors: Billable Hours, Self-Employment Taxes, and Benefits.
1. Adjusted Billable Hours:
A W2 employee is typically paid for 2,080 hours a year (40 hours/week × 52 weeks), regardless of holidays or vacation. As a contractor, you are only paid when you work. If you take 2 weeks of vacation and 1 week of sick time, your billable hours drop to 1,960.
2. The Tax Burden (FICA):
In the United States, FICA taxes (Social Security and Medicare) total 15.3%.
- W2 Employees: Pay 7.65%, and the employer pays the other 7.65%.
- 1099 Contractors: Must pay the full 15.3% (Self-Employment Tax).
3. The Value of Benefits:
W2 employers often subsidize health insurance, offer 401(k) matching, and provide equipment. This "Benefits Package" is often valued between $10,000 and $25,000 annually. As a contractor, you must pay these costs out of pocket, so they must be deducted from your gross contract earnings to find the "true" W2 equivalent.
Calculation Example
If you earn $100/hour as a contractor and take 4 weeks off per year:
- Gross Income: $100 × (48 weeks × 40 hours) = $192,000
- Tax Adjustment (7.65%): -$14,688
- Benefits Cost (Est.): -$15,000
- W2 Equivalent Salary: ~$162,312
- W2 Equivalent Hourly: ~$78.00/hour
This demonstrates the general rule of thumb: A W2 rate is typically 70-80% of a contract rate for the same take-home value.