Contractor vs Employee Calculator
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
Enter employee salary and contractor details to compare after-tax net income side by side.
Employee
Contractor
Employee net yearly income: $
Contractor net yearly income: $
Difference: $
Quick reference: contractor rate vs equivalent employee salary
Because contractors pay self-employment tax (15.3%) and receive no employer benefits, a higher gross rate is needed to match employee take-home. These figures assume a 30% combined tax rate for contractors and 25% for employees, at 48 billable weeks per year.
| Employee salary | Employee take-home (est.) | Equivalent contractor rate needed | Premium over employee |
|---|---|---|---|
| $60,000/yr | ~$45,000/yr | ~$40–$45/hr | ~25–35% |
| $80,000/yr | ~$60,000/yr | ~$52–$58/hr | ~25–35% |
| $100,000/yr | ~$74,000/yr | ~$65–$72/hr | ~25–35% |
| $120,000/yr | ~$87,000/yr | ~$78–$86/hr | ~25–35% |
| $150,000/yr | ~$108,000/yr | ~$97–$107/hr | ~25–35% |
Estimates only. Contractor rates assume 48 billable weeks, 40 hrs/week. Actual breakeven depends on your tax rate, benefits value, and unpaid time off. Use the calculator above for your specific numbers.
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
As an independent contractor, you are both the employer and employee. You pay the full 15.3% self-employment tax (12.4% Social Security on income up to $176,100 in 2026 + 2.9% Medicare on all income), plus federal and state income tax on net profit. You can deduct half of the self-employment tax from gross income — reducing taxable income slightly — but the net tax burden is still meaningfully higher.
The effective tax gap
| Tax component | Employee | Contractor |
|---|---|---|
| Federal income tax (22% bracket) | 22% | 22% |
| Self-employment / payroll tax | 7.65% (employee share only) | 15.3% (both sides) |
| SE tax deduction benefit | — | ~−1.5% |
| State income tax (varies) | Varies | Varies |
| Approximate combined rate | ~25–32% | ~30–40% |
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 — Solo 401(k) or SEP-IRA contributions reduce taxable income substantially (up to $70,000 in 2026 for Solo 401k)
- Business travel and mileage — $0.67/mile standard mileage rate for 2026
- Professional development — courses, books, conferences directly related to your field
- Half of self-employment tax — automatically deductible from gross income on Schedule SE
A contractor earning $100,000 with $15,000 in deductions effectively pays tax on $85,000 — meaningfully narrowing the gap with employee net income.
Filing taxes as an independent contractor?
Contractors file Schedule C (business profit/loss) and Schedule SE (self-employment tax) with their federal return. Quarterly estimated taxes are also required. Tax software guides you through both automatically.
- 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 your priorities. Contractors typically earn higher gross pay and have scheduling flexibility, but bear higher taxes, no paid leave, and no employer-provided benefits. Employees receive stable income, paid time off, health insurance, and retirement matching — but usually lower gross pay. Financially, contracting is worth it when the hourly rate is high enough to offset self-employment tax (15.3%) and the value of lost benefits.
How much more should a contractor earn compared to an employee?
Contractors generally need 20%–50% more in gross pay than an equivalent employee salary to net the same take-home. The gap comes from self-employment tax (15.3% on top of income tax), unpaid time off, and no employer benefits. A $80,000 employee salary requires roughly $52–$58/hr in contractor pay (at 48 billable weeks) to match net income.
Do contractors pay more tax than employees?
Yes. Contractors pay self-employment tax of 15.3% (12.4% Social Security + 2.9% Medicare) on top of federal and state income tax. Employees split payroll taxes with their employer — each pays 7.65%. Contractors can deduct half of self-employment tax on their return, reducing the effective impact, but the net tax burden is still typically 7–10 percentage points higher than for an equivalent employee.
What business expenses can contractors deduct?
Independent contractors can deduct ordinary and necessary business expenses from self-employment income, including: home office, 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.