The Freelance True Salary Formula
- Calculate gross annual revenue (billable hours × hourly rate × actual utilization rate)
- Subtract business expenses (software, equipment, insurance, marketing)
- Subtract self-employment tax (15.3% on net income — double FICA vs. W-2)
- Subtract health insurance premiums (no employer contribution)
- Subtract retirement contributions (to compare fairly with W-2 with employer match)
- The remaining amount = true equivalent salary for comparison to W-2 offers
Freelancer vs. W-2 true salary comparison at same nominal income
| Factor | Freelancer at $100/hr, 1,200 billable hrs | W-2 Employee Equivalent |
|---|---|---|
| Gross revenue / salary | $120,000 | $120,000 |
| Self-employment tax | -$17,000 (SE tax) | -$9,180 (FICA employee share) |
| Health insurance | -$8,000 (individual plan) | -$2,400 (employer covers rest) |
| Retirement (solo 401k) | -$12,000 (comparable 401k) | -$7,200 (6% employee contribution) |
| Business expenses | -$6,000 (software, equipment) | $0 (employer provides) |
| True take-home equivalent | $77,000 | $101,220 |
A freelancer billing $100/hour at 1,200 annual billable hours (63% utilization of a 1,900-hour year) earns $120,000 gross. After SE taxes, health insurance, retirement, and business expenses: approximately $77,000 in equivalent W-2 salary. The required freelance rate to match a $100,000 W-2 salary is approximately $65–$70/hour.
The Required Freelance Rate Formula
To find the freelance rate equivalent to a W-2 salary: add employer costs (health insurance, FICA match, retirement match) to the W-2 salary, then divide by billable hours. For $100,000 W-2 with full benefits: equivalent cost to employer = $125,000. At 1,200 billable hours: required rate = $125,000 ÷ 1,200 = $104/hour to break even.
Calculate Your True Freelance Equivalent Salary
Enter your billing rate and hours — see what your actual equivalent salary is after all self-employment costs.