Contractor vs Employee Calculator: Net Income (2026)
Compare contractor vs employee pay by estimating net yearly income after tax. Enter your employee salary and contractor hourly rate to see which arrangement puts more money in your pocket — accounting for taxes and billable time. Contractors typically need 20–50% more gross pay to match employee take-home.
On this page: Calculator · Rate reference table · How it works · Contractor deductions · FAQs
Contractor vs employee net income calculator
Compare net cash income using your own effective tax rates. The calculator does not value employee benefits, contractor expenses, or business deductions unless you reflect them in the inputs.
Employee
Contractor
Employee net yearly income: $
Contractor net yearly income: $
Difference: $
Comparing a real offer? TurboTax↗ can help estimate contractor tax forms; separately value benefits and business costs before deciding.
Quick reference: contractor rate vs equivalent employee salary
This table isolates the calculator's tax-and-billable-time math. It assumes a 30% effective tax rate for contractors, 25% for employees, 40 contractor hours per week, and 48 billable weeks. It does not add the value of health insurance, paid leave, retirement matching, equipment, or other benefits/costs.
| Employee salary | Employee take-home (est.) | Equivalent contractor rate needed | Premium vs W-2 gross hourly equivalent |
|---|---|---|---|
| $60,000/yr | $45,000/yr | ~$33.48/hr | ~16% |
| $80,000/yr | $60,000/yr | ~$44.64/hr | ~16% |
| $100,000/yr | $75,000/yr | ~$55.80/hr | ~16% |
| $120,000/yr | $90,000/yr | ~$66.96/hr | ~16% |
| $150,000/yr | $112,500/yr | ~$83.71/hr | ~16% |
The ~16% premium is the result of these stated assumptions only: 25% employee tax, 30% contractor tax, and 48 billable contractor weeks versus 52 salary weeks. A real breakeven rate may be materially higher after benefits, unpaid administration, insurance, equipment, downtime, and business expenses are included.
How contractor vs employee tax works
The core difference between contractor and employee taxation is who pays payroll tax — and how much.
Employee tax breakdown
As an employee, you pay 7.65% in payroll taxes (6.2% Social Security + 1.45% Medicare), and your employer matches that amount. Federal and state income tax are withheld from each paycheck based on your W-4. You never see — or pay — the employer's share of payroll tax. Your effective tax burden is income tax plus your 7.65% employee share.
Contractor tax breakdown
Independent contractors generally pay SE tax on net business profit. Under the regular Schedule SE method, 92.35% of net profit is generally treated as net earnings before the 15.3% Social Security-and-Medicare rate is applied. The 2026 Social Security wage base is $184,500 across W-2 wages and net self-employment earnings; Medicare is not capped. Half of the calculated SE tax is generally deductible as an adjustment to income.
The effective tax gap
| Component | Employee | Independent contractor |
|---|---|---|
| Income tax | Progressive federal/state rules | Progressive federal/state rules on taxable income |
| Social Security + Medicare | 7.65% employee share before applicable wage/Medicare rules | 15.3% statutory SE rate generally applied to 92.35% of net profit, subject to wage/Medicare rules |
| Business expenses | Usually not Schedule C deductions | Ordinary and necessary business expenses generally reduce Schedule C net profit |
| Benefits and paid time | May be employer-provided | Usually must be funded/priced by the contractor |
Contractor deductions that reduce the tax gap
Independent contractors can deduct ordinary and necessary business expenses from self-employment income — reducing both taxable income and self-employment tax. Common deductions include:
- Home office — dedicated workspace proportional to home square footage, or $5/sq ft simplified method (up to 300 sq ft)
- Equipment and software — computers, monitors, subscriptions, and tools used for business
- Health insurance premiums — deductible above-the-line if not eligible for employer coverage through a spouse
- Retirement contributions — a Solo 401(k) has a $24,500 elective-deferral limit in 2026; the overall defined-contribution limit can reach $72,000 subject to compensation and plan rules
- Business travel and mileage — the IRS business mileage rate is 72.5¢/mile for Jan.–June 2026 and 76¢/mile for July–December 2026
- Professional development — courses, books, conferences directly related to your field
- Half of self-employment tax — generally deductible as an adjustment to income
A contractor with $100,000 of business revenue and $15,000 of ordinary and necessary deductible business expenses generally starts with $85,000 of Schedule C net profit before separate income-tax adjustments and deductions are considered.
Business mileage must be substantiated. A simple mileage log↗ can help keep dates, mileage, and business purpose organized. See the IRS mileage-rate table for the 2026 midyear rate change.
Filing taxes as an independent contractor?
Many sole-proprietor contractors report business profit on Schedule C and calculate SE tax on Schedule SE. Estimated payments may also be needed when withholding and credits will not cover enough tax. Tax software can help prepare these forms and calculations.
TurboTax Self-Employed↗ — built for contractors and freelancers; finds industry-specific deductions and files Schedule C
H&R Block Self-Employed↗ — file online or with a tax pro for complex contractor situations with multiple clients
FreeTaxUSA↗ — handles Schedule C and self-employment tax at low cost for straightforward contractor returns
Affiliate links — we may earn a commission at no cost to you.
Related self-employment and pay calculators
- After-tax self-employed income calculator Estimate net income after income tax and self-employment tax on freelance earnings
- Side income tax calculator Estimate taxes on freelance or gig income earned alongside a regular job
- Salary vs hourly calculator Compare annual salary to hourly pay for traditional W-2 employees
- Net hourly wage calculator Calculate your true hourly earnings after commute, prep time, and taxes
- Self-employment tax calculators — all tools Full overview of freelance, contractor, and side income tax calculators
Contractor vs employee: FAQs
Is it better to be a contractor or an employee?
It depends on the specific offers. A contractor may have a higher gross rate and more control over schedule or clients, but usually must price taxes, unpaid time, insurance, equipment, administration, and benefits into that rate. An employee may receive paid leave, health coverage, retirement matching, unemployment coverage, or other benefits. Compare total compensation and work terms, not tax rates alone.
How much more should a contractor earn compared to an employee?
There is no universal percentage. Under this page's tax-only example—25% effective tax for the employee, 30% for the contractor, 40 hours per week and 48 billable contractor weeks—an $80,000 salary with $60,000 net cash is matched at about $44.64/hour before valuing benefits or contractor business costs. Add those costs separately for a real offer comparison.
Do contractors pay more tax than employees?
Contractors often bear more Social Security and Medicare tax directly than W-2 employees, because employees generally have a 7.65% employee share while an independent contractor can owe both sides through SE tax. But the contractor calculation is not simply 15.3% of gross revenue: Schedule SE generally uses 92.35% of net profit, the Social Security wage base matters, and business deductions reduce profit. The total difference depends on the complete tax situation.
What business expenses can contractors deduct?
Independent contractors can deduct ordinary and necessary business expenses from self-employment income, including: home office (dedicated workspace), equipment and software, professional development and subscriptions, business travel and mileage, health insurance premiums (above-the-line deduction), and the employer-equivalent portion of self-employment tax. These deductions reduce taxable income and the effective tax rate, narrowing the gap with employee pay.
Does this calculator include employee benefits?
No. This calculator compares net cash income only and does not include the value of employer-provided benefits such as health insurance, paid time off, 401(k) matching, or other perks. To do a full comparison, estimate the dollar value of your employee benefits package and subtract that from the contractor net income difference shown.