Self-Employment Tax vs. W-2 Calculator: What Workers and LLC Owners Both Pay

If you're comparing a 1099 contract against a W-2 job offer, the short answer is this: as a self-employed worker you pay 15.3% in self-employment tax on your net earnings, while a W-2 employee pays only 7.65% because the employer covers the other half. But that's only one side of the equation. If you're the LLC owner deciding whether to hire a W-2 employee or keep paying a 1099 contractor, the question flips — you need to know what that 7.65% match, plus unemployment insurance and workers' comp, actually adds to your payroll cost. This guide walks through both sides with a worked $70,000 example.

The worker's side: 1099 vs. W-2 tax rate

15.3% self-employment tax vs. 7.65% W-2 share

Per IRS Topic 554, self-employment tax is 15.3% of net self-employment earnings, split into two parts: 12.4% for Social Security and 2.9% for Medicare. You calculate it on 92.35% of your net profit, not the full amount, and you can deduct half of the SE tax as an above-the-line adjustment when you file your income tax return. The Social Security portion applies only up to the annual wage base; the Medicare portion has no cap.

A W-2 employee only has 7.65% withheld from their paycheck — 6.2% for Social Security and 1.45% for Medicare — because the employer is legally required to pay a matching 7.65% out of its own pocket. The employee never sees that employer-paid half; it doesn't reduce their paycheck.

Note: the Social Security wage base — the cap above which the 12.4%/6.2% Social Security portion stops applying — changes every year. The 15.3% and 92.35% figures above don't change year to year, but the wage base does, so check SSA.gov's contribution and benefit base page for the current-year cap before you rely on it for high-income calculations.

Why 1099 rates should run 25-35% higher than W-2 pay

Several 1099 vs. W-2 calculators publish a rule of thumb for how much higher a contractor rate should be to match an equivalent W-2 salary. Indeed Flex's calculator, for example, recommends pricing a 1099 rate roughly 25-35% above the W-2 equivalent. That range isn't just about the tax gap — the extra self-employment tax (roughly 7.65 percentage points more than a W-2 employee pays directly) is only part of the story. A 1099 worker also doesn't get employer-paid health insurance, retirement matching, paid time off, unemployment insurance coverage, or workers' comp protection. When you add the SE tax difference to the value of those missing benefits, a fair 1099 rate needs to land meaningfully above an equivalent W-2 salary just to break even. Treat 25-35% as a starting benchmark, not a guarantee — the right number for you depends on your actual benefits cost and tax bracket.

The employer's side: what it costs an LLC to hire W-2 vs. 1099

This is the part most 1099 vs. W-2 calculators skip, and it's the question that actually matters if you own the LLC. When you pay a 1099 contractor $70,000, that's the whole bill — you file a 1099-NEC and move on. When you put that same person on W-2 payroll at $70,000, the salary is just the starting number.

Payroll tax match, unemployment insurance, workers' comp

• FICA match: you owe 7.65% of wages — the same 6.2% Social Security + 1.45% Medicare your employee pays, matched dollar for dollar.
• Federal unemployment tax (FUTA): per IRS Publication 15, the standard FUTA rate is 6.0% on the first $7,000 of wages, but most employers receive a credit of up to 5.4% for paying state unemployment tax on time, bringing the effective federal rate down to around 0.6% in most states.
• State unemployment insurance (SUTA): a separate state-level tax on top of FUTA. The rate and wage base vary by state and by your experience rating, so there's no single national number — check your state workforce agency for your specific rate.
• Workers' compensation insurance: required in nearly every state for W-2 employees, priced per $100 of payroll based on your industry's risk classification. It also varies by state and job type, so it has to be quoted for your specific business.

None of these apply to a 1099 contractor relationship — which is exactly why misclassifying an employee as a contractor to avoid them is one of the most closely watched issues at the IRS and Department of Labor.

Misclassification risk of treating an employee as a contractor

The IRS doesn't let you choose the label — it looks at the working relationship. According to the IRS guidance on worker classification, the determining factors fall into three categories: behavioral control (do you direct how the work is done), financial control (who provides tools, who bears the profit/loss risk), and the type of relationship (is there a contract, are there benefits, is the work ongoing and core to the business). If you control someone's schedule, provide their equipment, and the work is a permanent part of your operations, calling them a 1099 contractor to skip payroll taxes is a misclassification risk — one that can trigger back taxes, penalties, and interest if the IRS or a state agency disagrees with the label.

Worked example: same $70,000 income, two outcomes

Here's what $70,000 looks like from both the worker's side and the LLC owner's side, assuming the worker has no other income or deductions and total earnings stay well under the current Social Security wage base.

In this example, the worker keeps more cash in hand on W-2 at the same gross pay — but the LLC pays at least $75,397 to employ them at a $70,000 salary, before state unemployment tax, workers' comp, or any benefits are added. That gap is the real trade-off: a 1099 worker is cheaper for the LLC dollar-for-dollar, but shifts the full 15.3% and all the benefit costs onto the individual, which is exactly why a fair 1099 rate needs to sit well above the W-2 equivalent.

Which setup is better for your LLC

There's no universal answer — it depends on what you're optimizing for and whether the role passes the IRS classification test.

• If you need ongoing, directed work that's core to your business (set hours, your equipment, your training), the IRS test points toward W-2, and the payroll tax match, SUTA, and workers' comp are the real, required cost of doing it correctly.
• If the work is project-based, the person sets their own hours and uses their own tools, and they could reasonably work for other clients, a 1099 relationship is likely appropriate — and cheaper for your LLC in direct cost, since you're not carrying payroll tax, SUTA, or workers' comp on that payment.
• Either way, track the real cost, not just the headline rate. A $70,000 1099 contractor and a $75,397+ W-2 hire (before SUTA, workers' comp, and benefits) aren't apples to apples unless you've run both numbers for your specific role and state.

If your LLC is weighing this decision for more than one hire, it's worth comparing it against entity structure too — our guide on self-employment tax vs. S-corp election covers how an S-corp election changes the self-employment tax picture for owner-operators, and our entity types overview breaks down how LLC, S-corp, and sole proprietor structures affect what you owe.

FAQ

Common questions LLC owners and freelancers ask when comparing 1099 and W-2 costs.

Informational content. It does not replace professional advice on your specific case.

Keep reading

LLC & Self-Employment TaxesLLC Partnership Tax Software: What You Actually Need for Form 1065 and K-1s

Multi-member LLCs need software that files Form 1065 and issues a K-1 to each member. TurboTax Business, TaxAct and ProConnect all produce the forms — but none of them track partner contributions and distributions during the year, which is usually where the numbers on those forms start to go wrong.

Oct 14, 2026 · 6 min readLLC & Self-Employment TaxesLLC Tax Deadline 2026: Exact Dates by Entity Type (And What Happens If You Miss Them)

Single-member LLCs and LLCs taxed as C-corps file by April 15, 2026. Multi-member LLCs (Form 1065) and LLCs taxed as S-corps file by March 16, 2026. Extensions (Form 7004 or 4868) add six months to file, but any tax owed is still due on the original date — late payment triggers interest and penalties immediately.

Oct 11, 2026 · 6 min readLLC & Self-Employment TaxesLLC Tax Preparation Software: The Real Alternative to Hiring a CPA

LLC tax preparation software like TaxAct Business or H&R Block Premium & Business lets you file Form 1065 or Schedule C yourself for roughly $100-$250 a year instead of the $800-$2,500+ a CPA typically charges. You save money and get speed, but lose audit representation and year-round tax strategy — and the software still needs clean books to work.

Oct 10, 2026 · 7 min read