Comparing opportunities does not need to be difficult.

In this article, we’ll provide a simple framework for calculating potential earnings as C2C vs W2. This may not capture all of the nuances but it’s great for those beginning to get into IT Contracting.

Key Takeaways

Simplified C2C Contract Rate Calculator [Easy]

We’ve created a simple calculator to determine your C2C rate in seconds.

Net Income | The Golden Rule

There are several ways to assess potential cost savings, but I follow a simple rule. It’s all about the NET. When I speak of the net, I’m referring to the net income.

This is a business term for how much money you have left after taxes and expenses.  

My goal is to show you my approach to calculating potential cost savings. This should help you determine what a minimum viable rate for yourself likely would be.

Many employees report an average salary increase of 2-3%. With inflation at the current rate, you cannot afford to not care about your paycheck.

If you’ve been at the same company for 5+ years and your salary has marginally increased, you should evaluate another opportunity.

Net Income Example Rule

Often as W2 employees people overlook the total amount of taxes taken yearly. Contract durations often vary; thus, it is important to think on a long time horizon.

Prior to accepting a contract opportunity, you want to calculate how much extra you earn for your family, your next vacation, downpayment, etc.

In the below, you may have to ask yourself if you are making the same $100k is the extra 10k worth the effort?

Note: In practice, contractors should never take a rate where the revenue is equal to their existing salary.

How do you calculate your true c2c vs w2 cost savings? [Detailed Approach]

For our example, we’ll compare w2 vs c2c s-corp taxes.

To properly calculate tax savings, we need to about a few business items:

W2 Savings After Taxes [Example]

Our fictitious business analyst makes 100k in Ohio and contributes 15k to their 401k. This means they are truly being taxed on approximately 85k (100k- 15k 401k contributions) before deductions.

For rough W2 calculations, I find Talent.com to be a great source using their Tax Calculator.

For the entire year, the analyst is targeted to earn a net pay of 64.5k and pay roughly $20k in taxes throughout the year.

Why to switch from LLC to S-Corp?

If you’re new to understanding the benefits of S-Corporations, I recommend you view an example of how we can assess potential cost savings.

C2C VS W2 Calculator

A Brief aside

A key concept to remember as a corporation is that you decide where your money goes. S-Corp owners must receive a reasonable salary but this is dependent on your business situation.

I dislike companies that use bonuses as incentives for good work effort. While understandable, bonuses are never promised in their entirety if business is bad.

I generally like the idea of receiving your salary + bonus amount as your true salary throughout the year and then you can decide how you spend your hard-earned cash.

Wrap Up

Does it always make sense to do c2c vs w2 work as a contractor? It depends, for some people the additional paperwork is not worth it if the income is not significant, but for myself, my golden rule is if it’s a 12% or more net increase then you should consider taking the opportunity.

If you can save a few extra $1000s if not $10,000s per year, you will very quickly propel your financial journey.

If you’re ready to take the journey as a C2C IT contractor, read our step-by-step guide on how to get started.