1099 Employee vs. W-2 Cost Calculator
What your first hire actually costs as a 1099 employee versus a W-2 employee. Not what decides which one applies.
Paying someone $80,000 as a 1099 contractor costs exactly $80,000. Paying that same $80,000 as a W-2 employee costs the business the employer share of FICA on top — about 7.65% — bringing the real cost to roughly $86,120.
That's the actual cost difference, but it isn't what should decide the classification. Whether someone is legally a contractor or an employee depends on control over how the work gets done, not which option is cheaper — misclassifying to save the difference is its own, separate liability for your first hire.
1099 employee vs. W-2 FAQ
What is a 1099 employee?
"1099 employee" is a common but technically inaccurate term for an independent contractor: someone who receives a 1099-NEC instead of a W-2 and isn't legally an employee at all. A true employee always gets a W-2; receiving a 1099 always means a contractor relationship, whatever the working arrangement is called informally.
1099 vs. W-2: what's the actual difference?
A 1099 contractor is paid gross, with no tax withheld and no employer payroll tax added on top. A W-2 employee has income tax withheld from every paycheck, and costs the employer roughly 7.65% more than their stated pay in employer-side payroll tax alone, before benefits. The dollar difference isn't what determines which one applies, though — that's decided by how much control the business has over how and when the work gets done.
Independent contractor vs. employee: how is it actually decided?
The classification depends on behavioral control (does the company direct how the work gets done), financial control (who provides the tools, who bears the risk of profit or loss), and the nature of the relationship (is the role core to the business, is there an ongoing arrangement rather than a single project). No single factor decides it on its own, and calling someone a 1099 contractor in a contract doesn't make it legally true if the actual working relationship looks like employment.
Do 1099 workers pay different taxes than W-2 employees?
Yes. A 1099 contractor pays self-employment tax, both the employee and employer share of Social Security and Medicare, about 15.3% combined, directly, with nothing withheld, and typically owes quarterly estimated tax payments. A W-2 employee has income tax and their half of FICA withheld automatically from every paycheck, with the employer paying the other half separately.
Not sure how the role should be classified?
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