1099 vs W-2: the real take-home math

Every freelancer eventually faces the conversion question, from one side or the other: a recruiter converts your rate to a “salary equivalent” that sounds huge, or a job offer converts to an hourly that sounds insulting. Both conversions are usually done wrong, and always in the direction that favors whoever is doing them.

The trap: salary ÷ 2,080

There are 2,080 working hours in a year of 40-hour weeks. Divide a $100,000 salary by it and you get $48. So a $60/hour contract beats the job, right?

Wrong twice.

First: benefits are invisible salary. The employer also pays their half of FICA (7.65% of salary), health premiums (commonly $550 to $700 a month for single coverage), and a retirement match (3 to 5%). On a $100k salary that hidden layer is easily $18,000 to $20,000. As a contractor, every one of those costs transfers to you.

Second: 2,080 billable hours do not exist. A contractor bills maybe 25 to 30 hours of a 40-hour week and works maybe 46 weeks. Real billable capacity: 1,100 to 1,400 hours. The same total compensation spread over half the hours doubles the required rate.

Run both corrections and the honest equivalence appears: our W-2 vs 1099 calculator puts a $100k salary with ordinary benefits at roughly $100 to $105 per hour of contract work. The lazy division said $48. The gap between those numbers is why so many freelancers work hard and stay broke.

The other direction: is that contract good?

Take the contract rate, subtract expenses, then run the double tax hit (SE tax plus income tax). The 1099 take-home calculator does the whole chain: $75/hour at 30 billable hours, 46 weeks, with $8,000 of expenses nets roughly $70k before health insurance, which is not what $75/hour sounds like at a party.

The rule of thumb that survives scrutiny

If you want one portable heuristic: salary ÷ 1,000 as the hourly floor. A $100k job is roughly a $100/hour contract, once benefits and billable reality are priced in. It lands surprisingly close to the full calculation for typical inputs, and it is the single most useful number to carry into any conversion conversation.

Freelancing still wins on things no calculator prices: autonomy, upside, choosing your work. It just should not win by accounting error.