How much must a contractor working under a 1099 charge to equal the pay of a FT employee making $150K?

Question

Is there a simple formula to calculate the contractor rate that equals the full time employee compensation? I understand that the contractor must pay Personal Employment Tax and their own insurance, but am not certain about those costs.

Let me know if any additional info is needed for an approximation of the formula used to identify the cost/benefit of going 1099.

Answer 1

If you work on a 1099, you pay self-employment taxes of 15.3%. You'd pay half of that as FICA deductions if you were an employee, so to compensate for the extra you pay with a 1099, you'd have to make around an additional $12,000 to equal $150K for a W-2 employee.

Fringes like insurance depend on what you'd have to pay to get comparable individual coverage, and that depends on your family situation. You'd have to check around in your area to see what it would cost you, then add that on to the $150K + $12K. And don't forget items like vacation and sick days - as a contractor, you'll only get paid for the actual hours that you work.

Good luck.

Answer 2

Hey,
The way it works is the Self-Employment tax is equal to what you would have paid into Medicare/Social Security as a regular employee. Since you are 1099'd, you don't pay any taxes out of a paycheck, but rather at the end of the year. In this way, you are not being taxed any more or less, just at a different time period. In other words, to make the same as an employee who makes 150k, you simply need to make 150k.

However, if you want to have 150k take home, that is completely different. If that is the case, it depends on your state income tax, any credits or deductions received, etc. and is difficult, but possible, to figure out. Easiest way would be to fill out a 1040 with all expectations, and see what the tax comes out to be, and then add that back to the top (and a little extra to account for changes in any tax brackets caused by higher income).

Hope that helps.