What benefits and costs add to your rate
Benefits your employer pays for are part of your pay. As a contractor you buy them with money that has already been taxed, so they cost more than their face value.
Example: health insurance and a 401(k) match
Suppose the job includes $6,000 a year of employer-paid health insurance and a 3% 401(k) match ($2,850 on $95,000). That is $8,850 of benefits.
| No benefits | With benefits | |
|---|---|---|
| 1099 rate needed | $67.47 | $76.31 |
| Yearly revenue | $97,162 | $109,893 |
Revenue rises by $12,731 to cover $8,850 of benefits, about 1.44 of revenue for each $1 of benefits. The extra is tax: the added revenue is also taxed.
Example: business costs
$4,000 a year for software, equipment and insurance changes the rate from $67.47 to $70.25. Costs are deducted from profit, so required revenue rises by exactly $4,000, the amount of the costs.
What to do with this
- Put your real employer health contribution and match into the calculator.
- List business costs you would genuinely have; do not guess high.
- Remember what is not modeled: self-employed health insurance deduction and retirement plan deductions, which can lower tax.
Examples use a single filer in Texas (no state income tax), 40-hour weeks, 20 days off, 75% of hours billed, the QBI deduction, and 2026 federal figures. Your result will differ. Estimates only, not tax advice.
Frequently asked questions
How do health insurance and a 401(k) match affect my rate?
You buy them with money that has already been taxed, so they cost more than their face value. In our example, replacing $8,850 of benefits needs about $12,731 more revenue.
What business costs should I enter?
Only costs you would really have as a contractor, such as software, equipment, insurance, licenses and a fair share of home-office costs. Costs are deducted from profit, so each dollar you enter raises the required revenue by exactly one dollar.