1099 vs W-2 Calculator 2026

Q: Is my freelance business an SSTB?

SSTB covers health, law, accounting, consulting, financial services, performing arts and athletics. Engineering and architecture are explicitly excluded. Most software developers, designers and writers are NOT SSTBs and keep the full 20% deduction at high income, subject to the wage limit.

Q: When does an S-Corp make sense for a freelancer?

An S-Corp election lets you pay a reasonable salary (7.65% FICA) and take the rest as distributions that avoid SE tax. It usually pays off above roughly $75,000-80,000 of net income, after accounting for payroll admin and filing costs.

Compare take-home pay as an independent contractor (1099) vs a W-2 employee — including the 20% QBI deduction.

1099 gross income (annual, $)

Business expenses (annual, $)

Deducted from gross to get net profit (Schedule C).

W-2 salary (annual, $)

State of residence

QBI deduction options (advanced)

W-2 wages paid by your business ($)

Only matters above $201,750 taxable income (wage limit).

Qualified property basis ($)

How much more tax do 1099 contractors pay in 2026?

A 1099 contractor pays the full 15.3% self-employment tax (12.4% Social Security + 2.9% Medicare) on 92.35% of net earnings, while a W-2 employee pays only 7.65% FICA — the employer covers the other half. On $100,000 of income that is roughly $7,065 more in employment taxes. But contractors can deduct half the SE tax, business expenses, and the 20% QBI deduction, which narrows the real gap to 5-10% of income.

What is the QBI deduction in 2026?

The 20% qualified business income deduction (Section 199A) was made permanent by the One Big Beautiful Bill Act. Below $201,750 of taxable income (single) you get the full 20% of QBI, capped at 20% of taxable income. Above that, a wage/property limit phases in over $75,000, and a new $400 minimum deduction applies if your QBI is at least $1,000. Engineers and architects are excluded from the SSTB phase-out.

What are the 2026 QBI income thresholds?

For single filers the full deduction applies up to $201,750 of taxable income (Rev. Proc. 2025-32). The phase-out range widened from $50,000 to $75,000 under OBBBA, so the deduction phases out between $201,750 and $276,750. For married filing jointly the range is $403,500 to $553,500. Specified service businesses (consulting, health, law, accounting, financial services) lose the deduction entirely above the top of the range.

Is my freelance business an SSTB?

SSTB covers health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, and any business whose principal asset is the reputation or skill of its owners. Engineering and architecture are explicitly excluded. Most software developers, designers, writers and tradespeople are NOT SSTBs — they keep the full 20% deduction even at high income, subject to the wage limit.

When does an S-Corp make sense for a freelancer?

An S-Corp election lets you pay yourself a "reasonable salary" (subject to 7.65% FICA) and take the rest as distributions that avoid SE tax. The trade-off: payroll admin, filing costs, and the salary must be reasonable. It usually pays off above roughly $75,000-80,000 of net income. The QBI deduction still applies to S-Corp income, but the wage limit can bite if your salary is too low.

How do I compare a job offer to a contract rate?

A W-2 salary of $80,000 costs the employer roughly $100,000 with FICA match, benefits and overhead. As a 1099 contractor you keep the full gross but pay 15.3% SE tax, your own health insurance, and no paid leave. A rule of thumb: a contract rate of 1.3-1.5× the hourly equivalent of the salary breaks even. This calculator shows the exact after-tax comparison for your numbers.

Disclaimer

Indicative estimate based on the rules in force on the verification date. This is not tax advice: always confirm with the tax authority, social security office or your accountant, because your own case may involve allowances, deductions or deadlines.

Data verified on: 21.10.2026

How to BECOME

Register with the social security authority for your country and apply for the reduced starter rate if you qualify. The contribution base can be changed 6 times a year.

How to become self-employed

How to become self-employed: step by step

Six steps with the real deadlines and the official links. Order matters: the registration date is what opens the window for the reduced rate and the VAT threshold.

Two questions decide your structure before you invoice anyone. First, IR35: if your client ends the contract and pays a substitute worker, the client checks your status. If your own limited company is between you and the client, that client is outside IR35 — but clients do check. Second, VAT: you must register if your turnover exceeds £90,000 in any 12 months (from 1 April 2025) — the registration threshold is not a tax allowance.
gov.uk — VAT registration threshold →
A sole trader is the simplest and cheapest to set up, and usually best below ~£50-60k profit. A limited company (Ltd) costs ~£50-500 to incorporate plus £0-820/year in accounts and confirmation statements, but moves employment tax off distributions above ~£80k profit. An umbrella company is just a payroll intermediary for contractors inside IR35 — it is not your own company.
gov.uk — set up a limited company →
You must register for Self Assessment by 5 October in the second year after the tax year you started trading (31 October for a limited company). You get a Unique Taxpayer Reference (UTR) within 2 weeks. You then file a Self Assessment tax return each year, normally by 31 January, with a balancing payment by 31 July.
gov.uk — register for Self Assessment →
As a sole trader you pay Class 4 NI at 6% on profits between £12,570 and £50,270, and 2% above — no cap. Class 2 is voluntary at £3.45/week if your profits are below £7,105 (this preserves your state pension and maternity rights). If you are an employee as well, your Class 4 is reduced by your Class 1 contributions.
gov.uk — self-employed National Insurance →
For sole traders you can use the simplified mileage allowance of 55p per mile for the first 10,000 business miles and 25p after (from 6 April 2026) instead of itemising fuel, insurance, repairs, tax and depreciation. You cannot mix methods for the same vehicle in the same year. For a company car, use the Advisory Fuel Rates to work out the benefit charge instead.
gov.uk — allowable business expenses →
HMRC expects tax to be paid in instalments via the Making Tax Digital quarterly updates (payments on account), and charges interest and penalties if you pay late. Separately, a 1099 or SEIS-free freelance contract pays nothing between contracts: budget 20-30% of your rate for unpaid time, pension, holiday and sick pay that employees get for free.
gov.uk — pay your Self Assessment tax →

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1099 vs W-2 Calculator 2026

How much more tax do 1099 contractors pay in 2026?

What is the QBI deduction in 2026?

What are the 2026 QBI income thresholds?

Is my freelance business an SSTB?

When does an S-Corp make sense for a freelancer?

How do I compare a job offer to a contract rate?

Disclaimer

How to BECOME

How to become self-employed: step by step

11. Check your VAT and IR35 status first−

22. Decide: sole trader, limited company or umbrella+

33. Register with HMRC for Self Assessment+

44. Get National Insurance right+

55. Claim your allowable expenses properly+

66. Put money aside for tax and for the gaps+

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