There is no single 20%, 30% or 40% rule that works for everyone
The useful premium is the difference between your employee gross pay and the contractor gross required to reach approximately the same modeled take-home. That premium changes with self-employment tax, state income tax, deductible business costs, self-funded health insurance and the number of hours you can realistically bill.
A percentage rule can be a quick negotiation shortcut, but it should not replace an actual break-even calculation. The same $100,000 W-2 salary can require a different 1099 target in Texas, California, Georgia or New York.
Worked example: $100K W-2
In the project’s standard Georgia planning scenario, with $10,000 of annual business expenses and $4,800 of self-employed health insurance, the modeled break-even contractor gross is about $117,565. That is roughly a 17.6% gross premium over a $100,000 W-2 salary before adding any separate premium for contract risk, lost employer benefits or desired business profit.
At 1,800 billable hours, the same break-even is about $65.31 per hour. Your own inputs can move the result materially, so use the calculator above rather than treating this example as a universal target.
What usually pushes the contractor premium higher?
Health contributions, retirement match, paid leave and employer-paid insurance can make the W-2 package worth more than salary alone.
Vacation, holidays, sales, administration and gaps between projects reduce revenue-producing hours.
Software, equipment, accounting, insurance and professional fees must be funded from contractor gross.
Short engagements, termination risk, slow payment or uncertain hours can justify a target above pure financial break-even.
Break-even premium vs negotiation premium
Break-even answers one question: what 1099 gross approximately matches the modeled W-2 take-home? Your negotiation target can be higher. Analyze My Income keeps those concepts separate so a risk or profit premium is not silently mixed into the tax calculation.
If you want to include bonus, employer health contributions, 401(k) match, paid time off and non-billable weeks, use the optional full-offer analysis in the main comparison calculator.