The W2-to-1099 math nobody shows you upfront

contractor_kai · 4 replies

going perm after 7 years contracting and i keep having to explain this to people so i'll just write it down.

your 1099 rate needs to be roughly 1.5x-1.7x the equivalent W2 salary to break even. people always forget: you pay both sides of FICA (15.3% on the first ~$168k) health insurance comes out of pocket. a decent individual plan is $400-700/mo, family is genuinely brutal no 401k match, no employer HSA, no stock unpaid vacation is real. 3 weeks off = ~6% of annual income gone business expenses: software, equipment, occasional accountant

so if someone quotes you $90/hr W2 equivalent, that's probably a $130-145/hr 1099 rate in terms of total compensation. i've seen people take contract gigs because the hourly number looked big and then wonder why they feel poorer.

currently evaluating a perm offer. the base feels low but the stock might make up for it. still running the math.

4 replies

backend_bekah

the healthcare thing is what gets people. when i was freelancing briefly i was paying $680/mo for a plan that still had a $3k deductible. you have to factor that into every hourly rate conversation.

contractor_kai

exactly. and a lot of recruiters quoting you rates have never done the math themselves. they just know the bill rate from the client and take their cut.

laidoff_lena

i did a contract gig for 8 months last year at what i thought was a great rate. effective comp once i backed out taxes, insurance and downtime between contracts was basically what i made at my last full-time job. not a disaster but not the windfall i expected.

finance_faye

the other thing is quarterly estimated taxes. if you're not used to paying those, the april bill is a shock. set aside 28-32% of everything as you go. makes the high rate feel less impressive in real time.