US Contractor Rate Calculator

A W-2 agency runs your contract income through payroll exactly like a normal job: federal income tax and only the employee half of FICA (Social Security and Medicare) are withheld automatically, and the agency handles the employer paperwork. A 1099 sole proprietor invoices clients directly, deducts genuine business expenses before tax, but owes the full 15.3% self-employment tax (both the employee and employer halves of FICA) with no employer to split it, offset partly by an above-the-line deduction for half of that tax. At most rates the two land close on total tax; the real trade-off is agency margin versus doubled FICA plus deductible expenses.

Multiply your target base salary by roughly 1.5 to 1.8 to cover unpaid leave, lost benefits (health insurance, retirement matching), lost job security, and (if 1099) the doubled FICA burden, then divide by your realistic billable hours for the year (1,920 is a common default: 240 billable days x 8 hours). For example, an $85/hour rate through a W-2 agency over 1,920 billable hours with no state tax selected works out to a $122,813 annual take-home, a 75.3% retention rate. The calculator above runs this for your own numbers, including your state.

More than almost anything else in this calculation. Nine states, including Texas, Florida, and Washington, charge no state income tax at all. Most others charge a flat rate or their own progressive bracket table. California's progressive brackets reach 13.3% at the top, and New York City residents pay New York state tax plus the city's own separate local income tax stacked on top, the highest combined burden this calculator models. All 50 states plus DC are supported. Selecting your state above shows the real difference on your own rate.

A W-2 employee's employer pays half of the 15.3% combined Social Security and Medicare tax automatically, so the employee only sees 7.65% withheld. A 1099 sole proprietor has no employer to split that cost with, so they owe the full 15.3% on 92.35% of their net business income, roughly double the FICA bite of a W-2 job at the same headline income. The IRS partly offsets this by letting a 1099 filer deduct half of that self-employment tax from their taxable income before computing federal income tax.

1,920 billable hours is a common default: a 2,080-hour working year (52 weeks x 40 hours) minus a representative allowance for paid time off and public holidays (the US has no federal statutory minimum paid leave, unlike most other markets, so this uses a private-sector average rather than a legal floor) and downtime between contracts. The calculator lets you adjust this to your own situation.