1099 vs W-2 — am I actually saving money as a contractor?

I've been working as a 1099 independent contractor for about two years making $110K/year. My client just offered to bring me on as a W-2 employee at $95K/year with benefits (health insurance, 401k match, PTO).

On the surface it looks like a $15K pay cut, but people keep telling me that after you factor in self-employment tax and the cost of my own health insurance, the W-2 might actually be better. I tried doing the math myself and got confused. Here's what I know:

• 1099 income: $110,000/year
• Self-employment tax: ~$15,570 (15.3% on 92.35% of income)
• Health insurance I pay myself: $650/month ($7,800/year)
• No retirement match as 1099
• W-2 offer: $95K salary, employer covers health insurance (value ~$8,400/year), 4% 401k match ($3,800/year), 15 days PTO

Can someone help me actually compare these apples-to-apples?

This is one of the most common financial comparisons I help clients with. Let me break it down properly.

1099 at $110K — True Cost Analysis:

• Gross income: $110,000
• Self-employment tax (employer + employee portions of FICA): ~$15,570
• Deduction for employer half of SE tax: ~$7,785 reduces your AGI
• Health insurance deduction (self-employed): $7,800 reduces your AGI
• Qualified Business Income (QBI) deduction: Up to 20% of qualified income — this is a big one people forget. At your income level, this could be ~$18,800 off your taxable income.
• Business expenses: Are you deducting home office, equipment, software, professional development? These reduce your taxable income further.

W-2 at $95K — True Value Analysis:

• Salary: $95,000
• FICA: ~$7,268 (only the employee half — 7.65%)
• Employer-paid health insurance: $8,400 value (not taxed as income)
• 401k match: $3,800/year (free money)
• PTO: 15 days = ~$5,480 in pay for time off
• Other benefits: unemployment insurance, workers comp, employer liability insurance — all covered by employer

There's a really good calculator at /Calcs/1099-vs-w2-calculator/ that lets you plug in all these numbers and see the comparison side by side.

Don't forget state taxes — some states treat 1099 income differently. And the health insurance comparison is critical: is the employer-offered plan comparable to what you're buying on the individual market?

I ran my numbers through the calculator and it's really eye-opening. When you add the benefits value on top of the salary and account for the SE tax I'd no longer pay, the W-2 total compensation is actually about $112K vs my effective 1099 take-home of about $109K after all taxes and insurance.

But I do take the QBI deduction, which saves me about $4,700 in taxes on the 1099 side. So it's closer than I thought. The other factor is I work from home as a 1099 and the W-2 position is hybrid — 3 days in office. Is there a way to factor in commuting costs?

Good point about commuting costs — they're real but not tax-deductible for W-2 employees (that deduction was eliminated by the 2017 Tax Cuts and Jobs Act). So commuting is a pure out-of-pocket cost. If you're looking at, say, $200-$300/month in gas, parking, and wear on your car for 3 office days/week, that's $2,400-$3,600/year that effectively reduces your W-2 compensation.

Also consider: as a 1099, you can contribute to a Solo 401k — up to $23,500 employee contribution plus up to 20% of net self-employment income as the employer contribution (total cap $70,000 for 2026). That's a much higher ceiling than a regular 401k. If retirement savings is a priority, the 1099 structure gives you more flexibility there, though you don't get the employer match.

At the end of the day, when the numbers are this close, the decision often comes down to non-financial factors: job security, career growth, work-life balance, and whether you enjoy the independence of contracting or prefer the structure of employment.

Went through the exact same decision two years ago. Was making $120K as 1099, took a W-2 at $105K. Financially it was almost a wash once I factored in benefits, but here's what tipped it for me: I hadn't been putting enough into retirement as a 1099 (because it was "optional" and I kept telling myself I'd do it later), and I hated dealing with quarterly estimated tax payments.

As a W-2, my 401k gets auto-deducted, taxes are withheld, and I don't have to think about self-employment tax, quarterly filings, or annual 1099 reconciliation. The mental overhead reduction was worth more than any dollar difference. Plus my health insurance went from $650/month to $120/month for the same coverage level.

Not saying it's the right choice for everyone, but don't just look at the top-line numbers.

Counterpoint: I was W-2 for 15 years and switched to 1099 contracting three years ago. Yes, I pay more in taxes. But I also have multiple clients, so my income is more diversified (if one client drops me, I don't lose 100% of my income). I can deduct a real home office, equipment, professional development, and business travel. And I set my own hours.

The 1099 vs W-2 question isn't just about tax math. It's about how you want to structure your career. If you enjoy the contracting lifestyle and want to grow it into a real business, staying 1099 makes sense even if the immediate take-home is slightly less. If you want stability and low administrative overhead, go W-2.