Contractor against employee calculator, United States 2026
Put a contract rate next to a salary and see which one leaves more after tax.
What you invoice, before expenses.
Deductible costs of doing the work.
Side by side
Difference in take home
$2,925.66
Contracting leaves $2,925.66 more. Figures are for Texas.
| Contractor | Amount |
|---|---|
| Contract income | $120,000.00 |
| Business expenses | $8,000.00 |
| Net profit | $112,000.00 |
| Self employment taxboth halves of Social Security and Medicare | $15,825.10 |
| Federal income tax | $14,069.24 |
| Texas income tax | $0.00 |
| Take home | $82,105.66 |
| Employee | Amount |
|---|---|
| Salary | $100,000.00 |
| Federal income tax | $13,170.00 |
| Texas income tax | $0.00 |
| Social Security | $6,200.00 |
| Medicare | $1,450.00 |
| Take home | $79,180.00 |
- Contractor average rate
- 26.7%
- Employee average tax rate
- 20.8%
- Net earnings from self employment
- $103,432.00
- Half of self employment tax deducted
- $7,912.55
Assumptions
- Self employment tax applies to 92.35 percent of net profit, at the combined Social Security and Medicare rates, and half of it is deducted from income.
- The additional Medicare tax is not deductible, so it is added after that step.
- The qualified business income deduction is out of scope, and it can be worth a great deal to a contractor.
- Business expenses are treated as fully deductible against contract income.
- Health insurance is the largest thing missing from the employee side of this comparison, along with paid leave and any retirement match.
Sources
- Self employment tax, Social Security and Medicare taxes, Internal Revenue Service, checked 30 August 2026
- Federal income tax rate schedules, Internal Revenue Service, checked 30 August 2026
- Social Security and Medicare withholding rates, Internal Revenue Service, checked 30 August 2026
- Supplemental wage withholding rates, Publication 15, Internal Revenue Service, checked 30 August 2026
Where the difference comes from
An employee and their employer split Social Security and Medicare between them, 7.65 percent each. A contractor pays the whole 15.3 percent as self employment tax, charged on 92.35 percent of net profit. That 92.35 percent factor exists to mirror the deduction an employer would have taken for its own share, and half of the resulting tax comes off income before federal tax is calculated.
Because of that, a contract rate has to clear a salary by a noticeable margin before the two are level. The usual rule of thumb puts the gap somewhere around 25 to 30 percent once health insurance and unpaid time off are counted, though the tool here shows only the tax half of that and leaves the rest to you.
One large omission is worth naming. The qualified business income deduction can remove up to 20 percent of net profit from taxable income for many contractors, and it is out of scope on this page because it depends on the type of business, total income, and wages paid. Where it applies it can close most of the gap the table shows. Expenses are the other lever: a contractor deducts the cost of doing the work, which an employee cannot.
The employee side uses the same calculation as the take home pay pages, so you can open your state there for a fuller breakdown. Canadian contractors face a different set of contributions, covered on the Canadian page.