Contractor Rate Calculator: What to Charge as 1099
Setting your 1099 contractor rate requires accounting for costs that employers absorb for employees. This calculator starts with your desired equivalent annual salary, adds self-employment tax (15.3% applied as a conservative approximation on the salary equivalent), monthly overhead, and a target profit margin. It then divides by actual working hours to find the minimum and suggested hourly rates. Working days are calculated as 260 annual weekdays minus your chosen PTO days (default 15). SE tax is actually assessed on 92.35% of net self-employment income under IRS Schedule SE, which means the actual burden is slightly lower than this approximation; the conservative approach here gives you a buffer. The profit margin input lets you add a cushion above your floor rate for negotiation and slow periods. Results are pre-income-tax; add 25 to 30 percent for estimated combined federal and state income tax when setting your final target.
Formulas
Working days = 260 - PTO days
Working hours = Working days x 8
SE tax gross-up = Salary x 15.3% (conservative approximation; actual SE tax per IRS Schedule SE is 15.3% of 92.35% of net SE income)
Annual overhead = Monthly overhead x 12
Annual cost = Salary + SE tax gross-up + Annual overhead
Minimum hourly rate = Annual cost / Working hours
Suggested rate = Minimum hourly rate / (1 - Profit margin %)
How to use this calculator
- Enter the annual salary you want to match as an independent contractor.
- Enter how many days you plan to take as unpaid time off (vacation, sick days, and public holidays you choose to observe).
- Enter total monthly overhead: health insurance premiums, professional liability insurance, accounting fees, software subscriptions, and any other recurring business costs.
- Enter a profit margin percentage to set a suggested rate above the bare minimum.
- Read the minimum and suggested hourly rates. Add 25 to 30 percent to account for income tax when planning your personal budget.
Frequently asked questions
Why do contractors need to charge more than employees earning the same salary?
As a 1099 contractor you pay the full self-employment tax (both employee and employer halves of FICA: 15.3%), receive no employer-funded benefits, take unpaid time off instead of paid vacation and sick leave, and must cover all business overhead yourself. These costs can add 30 to 50 percent to the equivalent employee cost, which must be recovered through a higher hourly rate.
What is self-employment tax and how is it calculated?
Self-employment tax is 15.3% of net self-employment income (12.4% Social Security on the first $176,100 of net SE income plus 2.9% Medicare with no cap). The SE tax is calculated on 92.35% of net SE income (this accounts for the deductible portion). This calculator uses a conservative approximation of 15.3% applied to the salary equivalent for simplicity; the actual SE tax deduction means your effective burden is slightly lower in practice.
What benefits gap should contractors account for?
Typical employer-funded benefits include health insurance (commonly $6,000 to $24,000 per year for an individual or family plan), dental and vision insurance, employer 401(k) match (often 3 to 6% of salary), life and disability insurance, and payroll tax contributions. The health insurance component alone is often the largest cost gap and should be added to your overhead input in this calculator.
What types of overhead should I include?
Common contractor overhead items include: professional liability (E&O) insurance, business insurance, accounting and tax preparation fees, professional subscriptions and software, home office costs (a portion of rent, utilities, internet), continuing education, professional memberships, marketing and website costs, and equipment depreciation. Include recurring monthly items; amortise annual costs to a monthly figure.
How does contracting compare to a W-2 role at the same gross income?
A W-2 employee and a 1099 contractor with the same gross income have very different take-home economics. The W-2 employee has payroll taxes split with the employer, receives benefits, and has paid leave. The contractor pays full SE tax, funds their own benefits, and earns nothing during time off. To truly compare, calculate the full employer cost of the W-2 role (salary plus all benefits plus employer taxes) and set your contractor rate to match or exceed that total.
Official sources
- IRS Schedule SE (Form 1040), Self-Employment Tax: www.irs.gov/forms-pubs/about-schedule-se-form-1040.
- IRS Self-Employed Individuals Tax Center: www.irs.gov.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.