Work & Income
Glossary
Every term used in this calculator, defined plainly.
- W2 Employee
- An employee whose employer withholds taxes and pays the employer portion of FICA (Social Security and Medicare). Receives a W2 tax form annually.→ The left column in the calculator
- 1099 Contractor
- An independent contractor who invoices clients and receives a 1099-NEC form. Responsible for all taxes including self-employment tax. No employer benefits.→ The right column in the calculator
- Self-Employment (SE) Tax
- The 15.3% FICA tax contractors pay on both the employer and employee sides of Social Security (12.4%) and Medicare (2.9%). W2 employees only pay the employee half (7.65%).→ The "Self-employment tax rate" field — default 15.3%
- Total Compensation
- All forms of pay including base salary, employer health insurance contributions, 401k match, PTO value, and other benefits. The right comparison number vs contractor gross revenue.
- Employer Payroll Tax
- The employer's 7.65% FICA contribution that W2 employees don't see on their paycheck but that effectively increases the employer's total cost vs what the employee receives.
- Effective Tax Rate
- The percentage of gross income actually paid in taxes, after deductions. Lower than the marginal bracket rate.→ Used in both the W2 and contractor tax fields
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