$150K salary vs $180K contract: which pays more?
A $150,000 W-2 salary with $10,000 in benefits vs a $180,000 contract with $5,000 in expenses (both at a 22% income-tax rate): the W-2 nets $115,525, the contract nets $111,772.50. The salary wins by $3,752.50 — the $30,000 premium wasn't enough.
The breakdown
- W-2 net: $150,000 × (1 − 22% − 7.65%) + $10,000 benefits = $115,525
- Contract net earnings: $180,000 − $5,000 expenses = $175,000
- SE tax: $175,000 × 14.13% = $24,727.50
- Income tax: $175,000 × 22% = $38,500
- Contract net: $175,000 − $24,727.50 − $38,500 = $111,772.50
The rule of thumb
A contract typically needs to pay 25–40% more than the equivalent salary to break even, once SE tax, benefits, and unpaid time off are priced in. Here the 20% premium fell short. Price any offer pair in the 1099 vs W-2 calculator.
Frequently asked questions
Is $180K contract better than $150K salary?
Not in this example — after 14.13% SE tax, income tax, and expenses, the contract nets $111,772.50 vs $115,525 for the salary. The 20% premium didn't cover the contractor costs.
What is the self-employment tax rate?
15.3% on 92.35% of net earnings, which works out to about 14.13% of (gross − expenses) — versus 7.65% FICA as an employee, since contractors pay both halves.
What should a contract pay vs a salary?
Roughly 25–40% more than the equivalent salary, to cover SE tax, your own health insurance and retirement, and unpaid time off.