Employee versus business-to-business contract
Compare a W2 offer with a C2C contract on the same annual basis
A C2C billing rate needs to replace more than salary. It may also need to cover unbilled time, health insurance, retirement funding, business insurance, payroll and bookkeeping, equipment, and the risk of a contract ending.
Because an entity name does not establish its tax treatment, this calculator keeps C2C taxes as an explicit effective-rate assumption. That makes the uncertain input visible instead of presenting an invented universal C2C tax rate.
How to use this tool
Value the W2 package
Enter salary, employer-paid benefits, employee costs, and a realistic effective income-tax rate.
Estimate billable time
Exclude holidays, vacation, bench time, sales time, and unpaid gaps from C2C weeks and hours.
Price the business overhead
Include coverage, professional services, insurance, software, and unreimbursed work costs.
Stress-test tax treatment
Run more than one effective C2C tax rate if an election or reasonable-compensation figure is not settled.
What belongs in W2 benefits?
Use the employer contribution—not the retail sticker price—for benefits that have measurable value to you. Paid leave is often already reflected in annual salary and reduced working time, so avoid counting it twice.
What the break-even rate means
The displayed rate is the hourly invoice rate that produces the same modeled annual value at the entered billable hours and costs. It is not a market-rate recommendation and does not price late-payment or collection risk.
Example: What C2C rate matches a $120,000 W2 salary?
Using the default assumptions, a $120,000 W2 salary has $9,180 in estimated employee Social Security and Medicare tax and $24,000 in income tax at an assumed 20% effective rate. Subtract $4,800 in employee-paid costs to get $82,020 in net cash. Adding $18,000 in employer-paid benefits produces $100,020 in modeled annual value. Paid leave is not added separately, and the example has no other wages or Additional Medicare tax.
For C2C, assume 40 billable hours per week for 46 weeks, or 1,840 annual hours. Annual costs are $6,000 in business expenses, $8,400 for health insurance, and $3,000 for entity, payroll, and accounting services: $17,400 total. With an assumed 28% effective tax rate on positive profit, the break-even billing rate is ($100,020 / 0.72 + $17,400) / 1,840, or approximately $84.95 per hour when rounded to cents.
At $85 per hour, C2C revenue is $156,400. After $17,400 in costs, profit before estimated tax is $139,000; the assumed tax is $38,920, leaving $100,080 in net cash. That is $60 more than the modeled W2 cash-plus-benefits value. These assumed income-tax rates are illustrations, not tax brackets or a universal conversion factor. Change the rates, benefits, costs, or billable time to match the offers you are comparing.
Educational planning estimate only. It is not tax, legal, insurance, employment-classification, or contract advice. C2C arrangements should be reviewed using the actual entity, engagement, benefits, and state rules.
Sources and further reading
- IRS: Independent contractor defined — Worker-control factors and classification overview.
- IRS: Business structures — Federal tax structure overview for common entity types.
- SSA: 2026 contribution and benefit base — 2026 Social Security wage base used for employee payroll tax.
Frequently asked questions
Is C2C the same as 1099?
Not exactly. C2C describes the contracting parties, while Form 1099 reporting and federal tax classification depend on the payment arrangement and entity. An owner may also receive W2 wages from an S corporation.
Why does this calculator ask for a C2C effective tax rate?
Entity type, elections, owner wages, state rules, deductions, and credits can materially change tax. A single built-in rate would give false precision.
Should I include paid time off as a W2 benefit?
Account for paid time off once. If annual salary is paid regardless of time off and C2C billable weeks exclude time off, the comparison already captures much of that value.
Does the result determine worker classification?
No. Classification is based on the facts and degree of control, not which option produces more take-home cash.