How this calculator works
Planning comparison only. It uses a simplified 15.3% self-employment tax and 7.65% employee FICA before income tax; the actual SE-tax base and deduction are more complex.
When this result is useful
This is a first-pass gross-income comparison for two arrangements that are not economically identical. A contractor may pay business expenses and both sides of Social Security and Medicare, while an employee may receive paid leave, insurance subsidies, retirement matching, equipment, or other benefits.
How to interpret the output
The tool intentionally uses a simplified payroll-tax comparison and does not calculate full federal or state income tax. Actual self-employment tax generally uses a statutory net-earnings adjustment, may interact with the Social Security wage base, and can create an income-tax deduction. Business deductions must also be ordinary, necessary, and documented under applicable rules.
Worked example
The same gross pay can have different economics after contractor expenses, self-employment tax, and employee benefits.
Common mistakes to avoid
- Treating worker classification as an election rather than a facts-and-law determination.
- Comparing the same gross amount without pricing benefits and unpaid time.
- Using the simplified result as a tax return calculation.
Assumptions and limits
Inputs are treated as non-negative U.S. dollar amounts. Results are rounded to cents where useful. This tool is for planning and does not determine legal eligibility, payroll compliance, or final tax liability.
Build an itemized annual comparison including billable utilization, expenses, insurance, retirement, paid leave, equipment, and professional fees. Obtain professional guidance for classification or estimated-tax obligations.
Official reference
IRS self-employment tax overview
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