Calculator
1099 vs W-2 employer cost calculator
Paying someone as a 1099 contractor looks cheaper than payroll, until employer taxes and benefits are added in. Enter the annual pay, state and a benefits load to see the full W-2 cost side by side with the contractor's pay-only cost, plus the dollar gap between them. Reclassification risk is a separate question from cost.
Defaults to a placeholder new-employer rate. Check your state's actual rate; it depends on your state and your claims history.
| Cost line | W-2 employee | 1099 contractor |
|---|---|---|
| Pay | $80,000 | $80,000 |
| Employer Social Security (6.2%) | $4,960 | $0 |
| Employer Medicare (1.45%) | $1,160 | $0 |
| FUTA (0.6% on the first $7,000) | $42 | $0 |
| State unemployment (2.7% on the first $7,000) | $189 | $0 |
| Benefits load (20%) | $16,000 | $0 |
| Total | $102,351 | $80,000 |
The difference is $22,351 a year.
That is the employer tax and benefits load on top of the same $80,000 in pay, equivalent to about $38 an hour over 2,080 hours.
Illinois applies the federal common-law test, plus its own Employee Classification Act in construction.
Estimate for planning only, not tax or legal advice. Paying someone as a 1099 contractor when the working relationship meets the IRS common-law test for an employee, regardless of what the contract calls them, carries reclassification risk: back taxes, penalties and interest.
Questions
1099 vs W-2 employer cost calculator questions
What counts as the true employer cost of a W-2 employee?
Base pay, plus employer-paid Social Security and Medicare tax, federal and state unemployment tax, and any benefits you fund, such as health insurance or a retirement match. Payroll processing fees and workers' compensation premiums are additional and not included in this estimate.
How much is employer FICA tax in 2026?
6.2% for Social Security on wages up to the 2026 wage base of $184,500, plus 1.45% for Medicare on all wages, for a combined 7.65% employer share. The employee pays a matching 7.65% through withholding.
What is FUTA, and why is it only on the first $7,000?
Federal unemployment tax is 6.0% on the first $7,000 of each employee's wages each year, reduced to an effective 0.6% for employers that pay state unemployment tax on time in a state without a credit reduction.
Is a 1099 contractor really cheaper?
The pay rate alone usually is. A misclassified worker can expose you to back taxes, penalties and interest under the IRS common-law test, which weighs behavioral control, financial control and the relationship between the parties, not just what the contract calls someone.
Does this calculator use my actual state unemployment rate?
No. It defaults to a placeholder new-employer rate so you can see the shape of the cost. Your actual state unemployment rate depends on your state and your claims history, so check it with your state's labor agency before relying on the total.
Does this replace a payroll setup or a worker-classification review?
No. It gives a planning-stage estimate. A specific classification decision depends on facts particular to the role and the state involved, which this tool does not evaluate.
Sources
- IRS Publication 15 (Circular E), Employer's Tax Guide, 2026 (checked 2026-09-29)
- Social Security Administration, 2026 contribution and benefit base ($184,500) (checked 2026-09-29)
Where to go next
- PricingPublished monthly bookkeeping plans for US businesses, from solo LLCs to multi-entity operators and accounting firms buying extra capacity.
- Books, reconciled every weekBookkeepingMonthly bookkeeping in QuickBooks Online, Xero or the platform you already run: every transaction sorted into categories, every bank and card account reconciled, and a clean set of reports each month.
- GuidesBookkeeping, tax and finance guidesPlain-language guides to bookkeeping, tax preparation support, compliance and finance, each with its sources and a review date.
Next step
Talk to the team that would run your books
A short call covers your setup, your software and what a first month would look like. You get a written scope and price after it.