IRS SE tax rules · 2024

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//// Career · Contractor

Contractor vs Employee Break-Even Calculator

What hourly rate do you need as a contractor to match your W-2 salary and benefits? Enter your employer's exact package and contractor expenses to see your personal break-even rate and the premium above salary you need.

SE Tax Rate15.3%(vs 7.65% W-2)

QBI Deduction20%(Section 199A)

Quarterly DeadlinesApr · Jun · Sep · Jan

This is not W-2 vs 1099 comparison: This tool answers a specific question: "Given my exact employer's benefits package, what hourly rate do I need as a contractor to match my current compensation?"

Current W-2 situation

Annual W-2 salary

Employer health insurance (monthly)Monthly premium your employer pays toward your plan

401k employer matchMatch percentage of your salary (e.g. 4 = 4%)

PTO days value (annual)Days of PTO × daily rate. E.g. 10 days at $308/day = $3,077

Other benefits (annual)Dental, vision, life insurance, FSA contributions, etc.

Contractor expenses

Self-pay health insurance (monthly)What you would pay for your own plan

Retirement contribution goal% of gross income to save (replaces 401k)

Equipment (annual)Computer, desk, peripherals

Software & subscriptions (annual)

Accounting / CPA (annual)

Other business expenses (annual)Professional development, home office, misc

Billable hours

Billable hours per yearRealistic billable capacity (standard employee = 2,080 hrs)

hrs

Desired vacation weeksUnbillable weeks per year

wks

Effective billable hours: 1720 hrs/yr (1800 − 2 vacation weeks × 40)

Break-even hourly rate

$65.82/hr

minimum to match W-2 value

Break-even annual

$113,219

$9,435/mo needed

Contractor premium

$33,219

41.5% above salary

W-2 total value

$92,277

$12,277 in benefits

W-2 compensation stack

Base salary

$80,000

Employer health

$4,800

401k match

$3,200

PTO value

$3,077

Other benefits

$1,200

Total W-2 value$92,277

Contractor premium breakdown

W-2 salary replacement

$80,000

SE tax (employer share)

$6,120

Benefits replacement

$12,277

Health insurance (self)

$6,000

Retirement contributions

$11,322

Business expenses

$3,500

Break-even gross$113,219

You need $65.82/hr to match your $80,000 salary

That is $33,219 more than your salary (41.5% premium) to cover the employer FICA share, benefits you lose, and business expenses you now fund. Any rate above $65.82/hr is upside.

W-2 total compensation (salary + benefits)

salary + employer health + 401k match + PTO value + other benefits

$80,000 + $4,800 + $3,200 + $3,077 + $1,200

= $92,277

This is the full economic value of the W-2 offer — not just salary. Contractors must replace all of this themselves.

SE tax premium (employer FICA share you now pay)

W-2 salary × 7.65%

$80,000 × 0.0765

= $6,120

As a W-2 employee, your employer paid 7.65% of your salary in FICA taxes on top of your salary. As a contractor you pay both halves (15.3% total on 92.35% of net), so you need extra gross income to cover this.

IRC §3111 (employer FICA), §1401 (SE tax)

Benefits replacement + business expenses

self health insurance + equipment + software + accounting + other

$6,000 + $1,000 + $1,200 + $800 + $500

= $9,500

These are costs the employer was absorbing that you now pay directly.

Combined deduction rate (retirement contributions)

retirement contribution % of gross

10% of gross income

= 10% deducted from gross

Since retirement is a % of your gross income, we solve for the break-even gross that satisfies G × (1 - retirementRate) = all other costs.

Break-even annual gross income

(salary + lost benefits + contractor expenses + SE tax premium) ÷ (1 − retirementRate)

($80,000 + $12,277 + $9,500 + $6,120) ÷ (1 − 10.0%)

= $113,219

This is the gross you must bill annually to net the same economic value as your W-2.

Contractor premium over W-2 salary

break-even annual − current salary

$113,219 − $80,000

= $33,219 (41.5% premium)

This is the minimum additional gross you need as a contractor just to break even — before any upside.

Break-even hourly rate

break-even annual ÷ effective billable hours

$113,219 ÷ 1720 hours

= $65.82/hr

Effective billable hours = 1800 billed hours/yr − 2 vacation weeks × 40 hrs = 1720 hrs.

Key insight

The contractor premium is not just your hourly rate — it's the sum of taxes, benefits, and expenses your employer was quietly paying on your behalf. Most people underestimate this by 30–50% when they first go independent.

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