What is self-employment tax?

SE tax = 15.3% on net self-employment income (Social Security 12.4% + Medicare 2.9%). You can deduct half of SE tax from gross income. Above $168,600 in earnings, only the 2.9% Medicare portion applies (no cap).

Can I deduct health insurance as a contractor?

Yes. Self-employed individuals can deduct 100% of health insurance premiums for themselves and their families from gross income (as an above-the-line deduction on Schedule 1). This significantly reduces the financial disadvantage of losing employer-sponsored insurance.

What counts as billable hours?

Billable hours are hours you actually invoice clients. Full-time workers put in ~2,080 hours/year, but contractors spend 20–30% on non-billable activities: marketing, admin, client acquisition, professional development. Budget 1,400–1,800 billable hours realistically.

W-2 vs 1099 — what's the difference?

W-2 employees have taxes withheld by employers; 1099 contractors receive gross pay and handle their own taxes quarterly. Misclassification as 1099 when you're legally an employee is illegal — look up the IRS 20-factor test or ABC test (by state) if uncertain.

Employee vs Contractor Calculator — Total Comp Comparison | KalkWise

By the KalkWise Editorial Team Reviewed for accuracy Updated June 2026

What is the employee vs contractor calculator — total comp comparison?

In short

Contractors generally need to earn 20–40% more than an equivalent employee salary to break even after self-employment tax (15.3%), benefits loss, and business expenses. A $100K salaried employee costs the employer ~$130K with benefits; the equivalent contractor needs ~$85–95/hour to match net income.

Compares employee salary (with benefits) to contractor gross and net income, showing the break-even hourly rate a contractor must charge to match employee compensation.

How to use this calculator

1Enter employee annual salary.
2Enter estimated employer benefits value (health insurance, retirement match, PTO, etc.).
3Enter your contractor hourly rate.
4Enter annual billable hours (typical: 1,500–1,800).
5Enter estimated annual business expenses.

The formula

employee total=salary+benefits

contractor net=rate×hours−SE tax−expenses

Employee Total = S + B; Contractor Gross = R × H; Contractor Net = Gross − (Gross × SE) − Expenses

S: — Salary
B: — Benefits
R: — Hourly rate
H: — Billable hours
SE: — Self-employment tax rate (15.3%)

Worked example

The scenario

$90K salary + $20K benefits vs $75/hr contractor, 1,700 billable hours, $8K business expenses.

gives

The result

Employee package = $110K. Contractor gross = $127,500. SE tax = $19,508. Net = $99,992 — $9,992 more than salary.

Common use cases

Decide whether to freelance or stay employed.
Set contractor rates that are fair to both parties.
Evaluate an employer's offer to convert from contractor to employee.
Plan for quarterly estimated taxes as a contractor.

Limitations & assumptions

Benefits valuation is subjective — health insurance alone can be worth $10K–$25K/year.
Contractors have variable income and no paid time off, sick days, or unemployment insurance.
Some contractors can deduct health insurance premiums and retirement contributions, reducing tax burden.
Job security, career development, and equity compensation are not captured in this model.

Frequently asked questions

A common rule of thumb: contractor rate = (annual salary ÷ 1,000) × 1.3–1.5. For a $100K salary, charge $130–$150/hour. This accounts for self-employment tax, benefits, and unpaid time (vacations, non-billable time, finding work).

Disclaimer: KalkWise calculators are provided for general informational and educational purposes only and do not constitute financial, investment, tax, or legal advice. Results are estimates based on the figures you enter and the assumptions described above. Actual outcomes will vary. Consult a qualified professional before making financial decisions.

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