Classification and cost
What does a W-2 trade helper cost versus a 1099 contractor?
Short answer: if the person is your employee, the employer payroll-tax stack on a $20-an-hour, 40-hour helper is $3,224.40 in federal taxes plus state unemployment tax, before workers’ comp. If the person is a true independent contractor, you generally pay the invoice, not employer FICA, FUTA, or SUTA — and the contractor may owe self-employment tax. You cannot choose the cheaper column by changing the form. Classification is a legal test, explained in the existing 1099 vs W-2 classification guide.
Key takeaways
- This page is about money. The companion guide is about the IRS page on independent contractor vs employee and the DOL economic-reality test. Read that first if you are deciding how to hire.
- On a $20-an-hour, full-year W-2 employee, official employer FICA is $3,182.40 and net FUTA is $42.00 (IRS Publication 15, IRS Topic 751, IRS Topic 759 (Form 940/FUTA)). State unemployment tax is extra; official 2026 new-employer amounts on this same wage range from $112.50 in Nebraska to $1,227.20 in Nevada among states with a published rate in the U.S. DOL January 2026 Significant Provisions table (PDF).
- A 1099 form does not, by itself, decide workers’ compensation. Official state pages (Florida, Tennessee, Washington, and others) warn that uninsured subcontractors or misclassified helpers can still be picked up as employees for coverage. See the section below.
- A true contractor usually invoices you and pays self-employment tax on net earnings (IRS Topic 554 (self-employment tax)). That is their tax, not a wage you can pocket. Paying the same $20 an hour on a 1099 does not make the work cheaper for someone who is actually an employee.
On this page
Price a W-2 helper Opens the calculator at $20 an hour and 40 hours so you can add your state unemployment rate and a workers’ comp quote.
Open the calculatorThe W-2 employer-cost column
When you hire a W-2 employee, you pay the wage plus the employer share of payroll taxes. Using the same $20-an-hour, 40-hour, 2,080-hour example as the state payroll-tax index:
| W-2 line, one year | Amount |
|---|---|
| Wages | $41,600.00 |
| Employer Social Security (6.2%) | $2,579.20 |
| Employer Medicare (1.45%) | $603.20 |
| FUTA (0.6% net, first $7,000) | $42.00 |
| State unemployment tax (official new-employer range among published-rate states) | $112.50–$1,227.20 |
| Employer payroll taxes, federal plus official SUTA range | $3,336.90–$4,451.60 |
Those SUTA endpoints come from the official DOL January 2026 new-employer rates: 1.25% on Nebraska’s $9,000 wage base, and 2.95% on Nevada’s $43,700 wage base. Seven jurisdictions list only an industry-average rate in that table, so they are left out of the range rather than guessed. Workers’ comp, benefits, and payroll tools are also left out here; they belong in the W-2 column once you have a quote. See how workers’ comp is priced for a first employee.
The 1099 column, when the person is really a contractor
A genuine independent contractor is in business for themselves. You generally pay the agreed invoice, issue Form 1099-NEC when required, and you do not withhold income tax or FICA, and you do not pay employer FICA, FUTA, or SUTA on that invoice. The contractor may owe self-employment tax, which covers Social Security and Medicare for people who work for themselves. IRS Topic 554 (self-employment tax) explains that tax. This page does not invent a net-profit figure or a self-employment-tax dollar amount, because those depend on the contractor’s expenses and return.
What often changes the comparison is the rate you pay, not the form. A contractor who buys their own insurance, covers unpaid downtime, and remits their own taxes will usually quote a higher hourly or per-job price than a W-2 wage. This site does not invent a “typical contractor markup.” Ask for a written quote and compare it with the W-2 true cost from the calculator, including insurance.
Workers’ compensation is not decided by a 1099
The dollar comparison above is about payroll taxes. Workers’ compensation is a separate rule, and a 1099 form is not a workers’ compensation classification. The U.S. Department of Labor states that receiving a 1099 does not make you an independent contractor. Washington L&I puts it just as directly: “Is a 1099 form enough? No.” Colorado’s Division of Workers’ Compensation says paying someone with a 1099 does not make them a contractor.
State coverage pages say the same thing in trade terms. Tennessee’s official construction page warns that a 1099 does not mean a worker is properly classified. Florida’s official coverage page says contractors must verify subcontractor coverage or those workers become the contractor’s employees. An uninsured sub can be added to the hiring employer’s workers’ compensation payroll at audit. This site does not classify your helper and does not advise you to “just stay on a 1099.”
If the person is a W-2 employee, budget workers’ compensation in the W-2 column — using a quote, or the official Indiana and Wisconsin examples in the calculator where those apply. If you work in Texas, most private employers may choose whether to carry coverage, but nonsubscribers have official notice duties; see Texas nonsubscribers. Construction exceptions in Florida and Tennessee, and owner rules in Michigan and Georgia, are summarized on those state pages. Ohio, North Dakota, Washington, and Wyoming use official state funds, not a private policy; see the state-fund guide.
Why the cheaper-looking column is the wrong test
If you direct the person’s hours, provide the tools, send them to your jobs, and treat them like a helper, the IRS common-law test and the DOL economic-reality test may treat them as an employee no matter what form you use. The classification guide walks through those official tests. Misclassification can mean back employment taxes, penalties, and unpaid overtime under the Fair Labor Standards Act. Saving the $3,224.40 of federal employer tax is not a lawful reason to issue a 1099.
A useful way to use this page is the other way around: if the person is clearly an employee, budget the W-2 stack. If they are clearly a contractor — their own crew, their own insurance, a bid for a defined job — budget the invoice and keep the paperwork that shows why. If you are unsure, get advice before the first day of work. For a trade-by-trade W-2 cost, start with the cost of hiring your first employee.
See the W-2 stack in your state Add official state unemployment tax to the federal figures above.
Open the calculatorFrequently asked questions
Is a 1099 helper cheaper than a W-2 employee?
Not automatically. A W-2 employer pays official federal payroll taxes ($3,224.40 on a $20-an-hour, full-year example, plus state unemployment tax) and usually workers' comp. A true contractor invoices you and may owe self-employment tax. If the person is actually an employee, issuing a 1099 does not remove the employment-tax obligation.
What payroll taxes do I pay on a W-2 trade helper?
Employer Social Security at 6.2%, employer Medicare at 1.45%, net FUTA usually at 0.6% on the first $7,000, and state unemployment tax at your state's official wage base and rate. See IRS Publication 15 and the DOL January 2026 state UI table.
Where do I read the classification rules?
Start with the IRS page on independent contractor vs employee and this site's 1099 vs W-2 classification guide, which also summarizes the DOL economic-reality test. This page does not decide how any particular helper should be classified.
Figures on this page were checked against the linked official IRS, DOL, USCIS, ACF, and (where used) Indiana ICRB pages in November 2026. Examples are planning estimates, not a tax, legal, or insurance outcome. Confirm with your agencies, accountant, and carrier before you hire or classify a worker.