How to convert a salary to a 1099 contractor hourly rate

Updated October 22, 2026 · By the Solo Tax Optimizer team · Not tax advice

You have a contract offer at an hourly rate and a salaried job offer, or you are setting rates for your freelance business. How do you compare them? Dividing the salary by 2,080 hours gives a number that is far too low, because it ignores taxes, benefits and the hours a contractor can't bill.

Step 1: Add up the true value of the W-2 job

Start with the salary, then add what the employer pays on top:

• The employer's half of payroll tax: 7.65% of salary, which you would pay yourself as a contractor.
• Health insurance: the employer's share of the premium, often several thousand dollars a year for single coverage and more for families.
• Retirement match: for example, a 4% match on a $100,000 salary is $4,000.
• Other benefits: life and disability insurance, equipment, training budgets, phone allowances.

Paid time off is already built into the salary, because an employee is paid for 52 weeks. We account for it in the hours below.

Step 2: Add the contractor's business costs

Contractors pay for things employers usually provide: a laptop, software, professional insurance, accounting, a home office, and sometimes a coworking space. Add a realistic yearly estimate.

Step 3: Count realistic billable hours

A full-time year is 2,080 hours (52 weeks × 40 hours). A contractor loses some of those to:

• Holidays, vacation and sick days, all unpaid
• Finding clients, proposals and sales calls
• Invoicing, bookkeeping and admin
• Gaps between contracts

Assuming 6 weeks off and 35 billable hours in a working week gives 46 × 35 = 1,610 billable hours. Many independent professionals bill between 1,200 and 1,700 hours a year.

Step 4: Divide

Worked example: $100,000 salary

The naive conversion, $100,000 ÷ 2,080, is about $48 an hour. The realistic break-even is about $76, around 1.6 times higher. And that is only break-even, before any premium for the risk and instability of contract work.

What this simple method leaves out

• Income tax differences. Contractors can deduct business expenses and may get the QBI deduction, which can lower their income tax compared with an employee on the same income.
• The half-SE-tax deduction, which slightly reduces income tax.
• State taxes, which vary.
• Retirement savings. Contractors can contribute much more through a Solo 401(k), if they have the cash.

These effects usually make the true break-even a bit lower than the simple calculation. Our 1099 vs W-2 calculator includes them and compares after-tax take-home directly.

Setting your actual rate

Your break-even rate is a floor, not a target. Contractors typically add a premium for:

• Income instability and the time it takes to find the next contract
• No severance, unemployment insurance or paid leave
• Specialist skills or short-notice availability

If you plan to work through an S-Corp at higher income levels, the tax picture changes again. See when to elect S-Corp status.

Frequently asked questions

This guide explains general federal tax rules for the 2026 tax year. It is not tax, legal or financial advice. Your situation may differ, so talk to a qualified tax professional before acting on it.