Self-Employed vs W2 Calculator
Compare the net take-home pay between freelance work and traditional employment.
What this calculator does
This calculator compares net take-home pay between self-employment and a W-2 job. Enter your expected self-employed revenue, your deductible business expenses, and the salary you would earn as an employee doing equivalent work, and it computes both net figures side by side along with the tax premium between them.
The comparison runs the two tax regimes properly rather than applying a simple percentage. The self-employed side pays both halves of FICA on 92.35 percent of net earnings, deducts half of that against income, subtracts business expenses, and applies the qualified business income deduction. The W-2 side pays 7.65 percent FICA on gross wages with no business expense deduction at all.
When to use it
The obvious moment is when you have a freelance opportunity and a job offer on the table and need to know which pays more. It is also the right check when setting a rate: if you know the salary you are replacing, this tells you the revenue you need to generate to stand still.
The result often argues against the switch, and that is useful. Many people assume self-employment carries a punitive tax penalty, discover it is smaller than expected, and then miss that the real gap sits in benefits rather than tax. If the calculator shows self-employed net income within a few thousand dollars of a salary, the salary is almost certainly the better deal once health insurance, a 401(k) match, and paid leave are added back.
Understanding the inputs
Self-employed revenue is gross billings before any expenses, the total on your 1099s plus any income paid directly. Business expenses should include only ordinary and necessary business costs; leave out self-employed health insurance premiums, which are deducted separately on your return rather than against business profit.
The equivalent W-2 salary should be a realistic offer for the same work, not an aspirational number, since the whole comparison hinges on it being genuine. When setting it, remember an employer also pays 7.65 percent FICA on top of your salary, funds benefits, and covers unemployment insurance, so their total cost is well above the figure on your offer letter. That is the gap you have to earn back as a freelancer.
How is this calculated?
Self-employed pay both halves of FICA (15.3%) but can deduct business expenses and 20% QBI.
A worked example
Take $160,000 of freelance revenue with $20,000 of business expenses, leaving $140,000 of net profit, against a $140,000 W-2 salary, for a single filer in a state with no income tax. Using 2025 figures, self-employment tax comes to roughly $19,800, half of which is deductible. After that, the standard deduction, and a QBI deduction near $23,000, federal income tax is about $15,200, leaving net income of roughly $105,000.
The employee on $140,000 pays FICA of $10,710 and federal income tax of about $22,850, netting roughly $106,400. The two are within about $1,400 of each other. But the employee also receives employer-funded health coverage often worth $8,000 or more and a 401(k) match, so the W-2 role is materially ahead despite the freelancer's expense and QBI deductions.
Limitations and assumptions
This is an estimate, not tax advice, and the IRS is the authority. It compares federal tax only, for a single filer taking the standard deduction. State income tax, state business registration and franchise fees, and city taxes are excluded and can shift the comparison either way.
It does not price the things that usually decide the question: individual health insurance premiums, the value of an employer 401(k) match, paid leave, disability and life cover, unemployment eligibility, and the risk of unbilled weeks. Nor does it model an S-corp election, a solo 401(k) or SEP-IRA contribution, or the QBI phase-out that applies to specified service businesses above the income threshold. Anyone weighing this decision seriously should model it with a CPA using their own numbers.
Common Questions
- How much extra tax does self-employment actually cost?
- Less than the headline suggests. You pay both halves of FICA at 15.3 percent instead of 7.65, but only on 92.35 percent of net earnings, half of what you pay is deductible, and the QBI deduction can remove up to 20 percent of business income from tax. Business expense deductions then close much of what remains.
- What is the QBI deduction worth to a freelancer?
- Up to 20 percent of qualified business income, which for many independent workers is the single largest offset available. Below the income threshold it applies broadly; above it, specified service businesses such as consulting, law, and health face a phase-out and other businesses face wage and property limits. It is a deduction against taxable income, not against self-employment tax.
- What can I deduct that a W-2 employee cannot?
- Almost everything ordinary and necessary to the business: software, equipment, professional insurance, business travel, continuing education, and a home office meeting the exclusive use test. W-2 employees lost the miscellaneous itemized deduction for unreimbursed employee expenses, so an identical laptop is deductible for one and not the other.
- Can I save more for retirement as a freelancer?
- Considerably more. A SEP-IRA allows up to 25 percent of net self-employment earnings within an annual dollar cap, and a solo 401(k) combines an employee deferral with an employer contribution to reach a similar total. Both far exceed the plain employee 401(k) deferral limit, which is the strongest tax argument for self-employment at higher incomes.
- How do I replace employer health insurance?
- Through the ACA marketplace, COBRA from a previous employer, or a spouse's plan. Self-employed health insurance premiums are deductible above the line, which softens the cost, but the gross premium for family coverage frequently runs well over $20,000 a year, and this is the single biggest hidden cost of leaving a W-2 job.
- What benefits do I lose beyond health insurance?
- Employer 401(k) matching, which is unmatched compensation you simply forgo; paid time off, since unworked days are unpaid; unemployment insurance, which the self-employed generally cannot claim; employer-paid disability and life cover; and workers' compensation. Together these commonly represent 25 to 35 percent on top of a salary.
- Do I have to pay quarterly?
- Yes, if you expect to owe $1,000 or more, with payments due in April, June, September, and January. The safe harbour is paying 100 percent of last year's total tax, or 110 percent if prior year AGI exceeded $150,000, which protects against underpayment penalties even in a year when income rises sharply.
- At what income does an S-corp start making sense?
- Usually once profit comfortably exceeds a reasonable salary for the work, because distributions above that salary avoid payroll tax. Against the saving, set payroll processing, a separate business return, state fees, and the risk of the IRS challenging an unreasonably low salary. Below roughly $80,000 of profit the overhead typically eats the benefit.
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