Understand self-employment tax obligations from the IRS
The official IRS page explaining self-employment tax: the 15.3% rate (12.4% Social Security + 2.9% Medicare), who must pay, how to calculate, and the deduction for the employer-equivalent portion.
Source: Internal Revenue Service (IRS)articleApplies to: 2025
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Contractor vs Employee Compensation
Contractors typically need to charge 40-70% more per hour than the equivalent employee hourly rate to achieve comparable take-home pay, because they cover self-employment tax (15.3%), health insurance, retirement, PTO, and business expenses themselves.
Employee Salary Equivalent
An employee salary that matches your contractor income is typically 25-40% lower than your contractor gross, because the employer covers half of FICA taxes, provides benefits, and gives paid time off that you currently fund yourself.
Last reviewed: 2026-11-01 • Federal / General