W-2 vs. 1099 vs. Corp-to-Corp (C2C) Calculator

What this calculator does

This calculator compares the after-tax outcome of working as a W-2 employee, a 1099 independent contractor, or running a Corp-to-Corp (C2C) arrangement via an S-Corporation. It is built for software engineers, consultants, and independent professionals weighing different employment structures. By evaluating your gross compensation, the calculator breaks down net take-home pay, total tax liability, and business write-offs. It requires basic inputs like your hourly rate or annual salary, filing status, state tax rate, and estimated business expenses. The outputs show, for your inputs, how taxes and take-home pay differ between the three structures and what billing rate each would need to match the W-2 result.

How the math works

The calculations follow federal tax schedules and IRS Self-Employment tax guidelines for 2026, with the federal brackets and the $16,100 single / $32,200 joint standard deduction from IRS IR-2025-103. For a W-2 employee, you pay 7.65% FICA (6.2% Social Security on wages up to the $184,500 wage base plus 1.45% Medicare), and your employer pays a matching share that does not come out of your pay. Additional Medicare Tax of 0.9% applies to wages above $200,000 (single) or $250,000 (joint). Federal income tax is applied bracket by bracket to gross pay minus your pre-tax 401(k) deferral (up to $24,500) and the standard deduction. State tax is a simplification: a flat percentage of that same federal taxable income, while many states use their own brackets and deductions.

For a 1099 contractor, you operate as a sole proprietor. Self-employment tax is 15.3% (12.4% Social Security plus 2.9% Medicare) on 92.35% of net profit after business expenses; the Social Security portion stops at the $184,500 wage base, and the 0.9% Additional Medicare Tax applies above the same thresholds. Half of the regular SE tax is deductible. Your Solo 401(k) contribution is capped at the self-employed limit: up to $24,500 of deferrals plus 20% of net earnings after the half-SE deduction, $72,000 in total. The Qualified Business Income (QBI) deduction is modeled at 20% of net business income, limited to 20% of taxable income. For 2026, above $201,750 of taxable income ($403,500 joint) it phases out over the next $75,000 ($150,000 joint), because a sole proprietor with no employees pays no W-2 wages; the $400 minimum deduction for at least $1,000 of QBI is included. The tool assumes the business is not a specified service trade or business (SSTB). Consulting and similar service businesses are SSTBs and lose the deduction entirely above the phase-in range.

Under the C2C (S-Corporation) structure, business profit (billing minus expenses) is split into a W-2 salary, set by the slider as a percentage of profit, and the remaining pass-through profit. Social Security and Medicare tax (the employee and employer 7.65% halves, with the same wage base) applies only to the salary; the corporation deducts its employer half, and the rest reaches you on a K-1 without payroll tax. Your retirement contribution is applied as an employee deferral first, then as an employer contribution of up to 25% of salary. The QBI deduction applies to the K-1 profit, and above the phase-in range it is limited to 50% of the W-2 salary paid. The IRS requires a reasonable salary for the work you perform, so the slider is a modeling input, not a safe harbor. The model leaves out payroll service, bookkeeping, state entity taxes and benefits. In every column, net take-home counts your retirement contribution as yours: it is income after taxes and business expenses, not cash in hand.

Worked example

This example uses the calculator's default inputs: $100 an hour for 40 hours a week and 50 weeks a year ($200,000 gross), single filer, 5% state tax rate, $12,000 of business expenses, a $20,000 retirement contribution and a 60% S-corp salary.

• W-2 Employee: The $20,000 401(k) deferral and the $16,100 standard deduction leave $163,900 of taxable income. Federal income tax is $31,934, state tax is $8,195, and FICA is $14,339 ($11,439 Social Security on the $184,500 wage base plus $2,900 Medicare). Total taxes are $54,468 and net take-home is $145,532.
• 1099 Contractor: Net profit after expenses is $188,000. Self-employment tax is $26,564, and half of it ($13,282) is deductible, so adjusted gross income after the $20,000 contribution is $154,718. A $27,724 QBI deduction leaves $110,895 of taxable income, with $19,213 of federal and $5,545 of state tax. Total taxes are $51,321 (components are rounded) and net take-home is $136,679. Matching the W-2 net would take about $106.75/hr.
• C2C (S-Corp): Of the $188,000 profit, 60% ($112,800) is W-2 salary. Payroll tax on the salary is $17,258 (employee and employer halves), and after the corporation deducts its $8,629 employer half, $66,571 of K-1 profit remains. Adjusted gross income is $159,371; a $13,314 QBI deduction leaves $129,957 taxable, with $23,788 of federal and $6,498 of state tax. Total taxes are $47,544 and net take-home is $140,456, which is $3,777 more than the 1099 result but $5,076 less than the W-2 result, mostly because the $12,000 of business expenses comes out of the 1099 and C2C columns. Matching the W-2 net would take about $103.89/hr.

How the three structures compare as the rate rises

The gap between the columns is not constant. The table runs the calculator at four hourly rates, 2,000 hours a year, with the other default inputs (single filer, 5% state rate, $12,000 of expenses, a $20,000 retirement contribution, 60% S-corp salary). The last two columns are the rates a 1099 contractor and an S-corp owner would need to bill to take home the same net as the W-2 employee.

Two effects drive the pattern. Below the Social Security wage base, the 1099 contractor pays both halves of Social Security tax on nearly all profit, which is why the 1099 column trails at every rate. Above it, the gap narrows because Social Security tax stops, until the qualified business income deduction runs out. For 2026, Revenue Procedure 2025-32 sets the threshold at $201,750 of taxable income for single filers, with the wage limit fully applying at $276,750. A sole proprietor with no employees pays no W-2 wages, so above that range the deduction falls to the $400 minimum: it is about $27,000 at $150 an hour but $400 at $200 an hour, where the 1099 contractor needs $214 an hour to match the W-2 net. The S-corp keeps part of the deduction because its salary counts as W-2 wages.

The model treats the business as not being a specified service trade or business. Consulting, health, law, accounting and similar fields are, and for them the deduction disappears above the same range in both the 1099 and S-corp columns, so their results above roughly $277,000 of taxable income will be lower than shown.

How the S-corp salary split changes the result

The salary slider is the S-corp column's main lever. A lower salary means less Social Security and Medicare tax but also a smaller QBI deduction, because the deduction applies to the profit that is not salary. At the default $200,000 of billing and $12,000 of expenses:

Each 10 points of salary changes net take-home by about $3,600 here, so the lowest salary always looks best in the model. The salary is not a free choice, though. The IRS guidance on S corporation compensation says an S corporation must pay a shareholder-employee reasonable compensation for services before making non-wage distributions, and that the IRS can reclassify distributions as wages subject to employment taxes. For someone whose whole income comes from their own consulting work, a salary well below what a comparable employee would earn is the part of this comparison most likely to be challenged. The model also leaves out the costs of running payroll and filing a separate S-corp return.

Frequently Asked Questions

Sources

• IRS Revenue Procedure 2025-32: 2026 tax brackets, standard deduction and section 199A thresholds
• IRS, Self-employment tax (Social Security and Medicare taxes)
• IRS Publication 15 (2026): $184,500 Social Security wage base
• IRS, Questions and answers for the Additional Medicare Tax
• IRS, S corporation compensation and medical insurance issues
• IRS Notice 2025-67: 2026 retirement plan limits

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