Freelancer vs Employee
A practical comparison of 1099 freelance work and W-2 employment — what you actually take home after all taxes and costs.
Tax Differences
The biggest difference: freelancers pay self-employment tax of 15.3% (12.4% Social Security + 2.9% Medicare) on top of income tax. Employees split this with their employer, paying only 7.65%. On $80,000 of income, that is an extra $6,120 in tax as a freelancer.
However, freelancers can deduct half of SE tax from adjusted gross income, and deduct business expenses (home office, equipment, mileage, health insurance). Use our SE tax calculator for exact figures.
Benefits Gap
- Health insurance: Employees often get employer-subsidized coverage worth $7,000-$15,000/year. Freelancers buy their own (tax-deductible).
- 401(k) match: Employer match is free money — typically 3-6% of salary. Freelancers can open a Solo 401(k) but fund it entirely themselves.
- Paid time off: Employees get 10-25 PTO days. Freelancers earn nothing when not working.
- Unemployment insurance: Employees are covered. Freelancers are not.
Side-by-Side: $80,000
| Employee (W-2) | Freelancer (1099) | |
|---|---|---|
| Gross Income | $80,000 | $80,000 |
| Federal Tax | ~$9,900 | ~$8,400 (after SE deduction) |
| Employee FICA | ~$6,120 | — |
| SE Tax | — | ~$11,300 |
| Health Insurance | ~$2,000 (employee share) | ~$7,000 (full cost) |
| Take-Home | ~$61,980 | ~$53,300 |
The freelancer takes home $8,680 less on the same gross income. To match the employee, the freelancer needs to earn roughly $95,000-$100,000.
When Freelancing Wins
Despite the tax hit, freelancing can be more profitable if you charge enough. Freelancers can deduct expenses, set their own rates, take on multiple clients, and scale income without a salary cap. The key is pricing correctly — always add 25-40% above what you would accept as a salary.
Frequently Asked Questions
Do freelancers pay more tax?
Yes — freelancers pay self-employment tax (15.3%) in addition to income tax. Employees split FICA with their employer, so the employee only pays 7.65%.
What rate should I charge as a freelancer?
A common rule: take the equivalent salary, add 25-40% for self-employment tax, health insurance, no paid time off, and no employer benefits. A $75,000 employee equivalent needs roughly $100,000-$105,000 in freelance revenue.
Can I be both an employee and freelancer?
Yes. Many people have a W-2 job and do freelance work on the side. You pay regular employment taxes on W-2 income and self-employment tax on 1099 income. Both are reported on your tax return.
Important Disclaimer
The figures provided by this calculator are estimates based on the information you enter and published rates at the time of writing. They do not constitute financial, tax, or legal advice, and we accept no liability for decisions made on the basis of these estimates. Your actual liability may differ depending on your individual circumstances, applicable reliefs, and any changes to rates or legislation. Always consult a qualified professional or check the latest IRS guidance at irs.gov before making financial decisions.