1099 & side work

W-2 vs. 1099 offers: compare on after-tax math

Last verified: 2 min read From the research brief
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Example: W-2 vs 1099 take-home at the same hourly rateHypothetical example from the research: 500 hours at $55 an hour. Offer A, W-2 with no benefits, take-home $19,346.25. Offer B, 1099 with $1,000 of extra business costs, take-home $18,421.17, about $925 less. Made-up numbers for illustration only.EXAMPLE · hypothetical numbersSame $55/hr, 500 hours/yearOffer A · W-2$19,346.25Offer B · 1099$18,421.17Take-home (≈ $925 less on the 1099 in this example)Assumes single, Texas, 22% bracket, no benefits on either side, and $1,000 of1099 business costs. Rerun the numbers with real offers.
Example: W-2 vs 1099 take-home at the same hourly rate

The short version

1099 work (PRN-as-contractor or legal nurse consulting) opens up Schedule C deductions, the 20% QBI deduction (now permanent), and a Solo 401(k)/SEP. It also adds ~15.3% self-employment tax.

With no benefits on either side, a 1099 rate only ~1–5% higher can match a W-2 rate, because QBI offsets most of the SE tax. Once W-2 benefits are real (match, health subsidy), the 1099 rate may need to be ~25%+ higher.

First, the classification question (gray area)

Whether a PRN nurse placed by an agency is truly an independent contractor depends on behavioral control, financial control, and the relationship. Taking a 1099 for work that looks like employment can cost you the employer's FICA share, overtime, and the overtime deduction.

Rule of thumb

In the hypothetical example below, the break-even 1099 rate was about 1–5% higher with no benefits, and about 26% higher with $4,100/yr of W-2 benefits. Rough estimate, not from the model: once you add your own unreimbursed costs, the overtime deduction you'd give up, and unpaid admin time, many comparisons land around 5–10% (no benefits) or 20–30%+ (real benefits). Rerun the numbers with your real offers.

Example From the research

All rates and hours below are made up for illustration. Assumptions: single, Texas (no state tax), side income taxed at the 22% federal bracket, combined earnings below the $184,500 SS wage base and the $201,750 QBI threshold, QBI not limited by taxable income, no SEHI or retirement contributions. 500 hours/year.

Offer A: W-2 PRN at $55/hr, no benefits

LineAmount
Gross pay$27,500.00
Your FICA (7.65%)−$2,103.75
Federal income tax (22%)−$6,050.00
Take-home$19,346.25

Offer B: 1099 at the same $55/hr, with $1,000 of extra business costs

LineAmount
Gross$27,500.00
Business expenses−$1,000.00
Net profit$26,500.00
SE tax (26,500 × 92.35% × 15.3%)−$3,744.33
½ SE tax deduction($1,872.17)
QBI deduction 20% × (26,500 − 1,872.17)($4,925.57)
Taxable increment$19,702.27
Federal income tax (22%)−$4,334.50
Take-home$18,421.17 (≈ $925 less than W-2)

Break-even 1099 rate in this example: ≈ $57.66/hr (+4.8%) with $1,000 expenses; ≈ $55.66/hr (+1.2%) with no extra expenses; ≈ $69.46/hr (+26%) if the W-2 job came with $4,100/yr of benefits (a hypothetical 4% 401(k) match = $1,100 plus a $3,000 health subsidy).

Example numbers are hypothetical and come from the source research. Your situation will differ.

Watch: W-2 vs. 1099: what changes

Narrated explainer · 57 seconds · spoken narration with on-screen captions

Transcript
  1. A W-2 job and a 1099 job at the same hourly rate are taxed differently.
  2. W-2 mileage, scrubs, license renewals, and CEUs aren't deductible. Ask for reimbursement under an accountable plan instead.
  3. 1099 work opens Schedule C deductions, the 20% QBI deduction, and a SEP-IRA or Solo 401(k).
  4. But it adds self-employment tax: 15.3% on 92.35% of net profit, about 14.13% of profit.
  5. Example with made-up numbers: at the same $55 an hour, the 1099 offer took home about $925 less.
  6. Research, not tax advice. Confirm with a CPA or EA before filing.

Sources

Research, not tax advice. Confirm with a CPA or EA before filing.