Someone on your Slack or at your coworking space has said it with total confidence: ‘Just add 20% to your W-2 rate and that's your corp-to-corp number.’ It sounds clean. It's also wrong often enough that it should come with a warning label.
The gap between W-2 and C2C isn't a flat percentage. It's a pile of variables — payroll taxes, unbilled hours, benefits you're replacing out of pocket, entity costs, and how often you actually sit on the bench between contracts. Run those variables through the math and the real break-even moves around a lot more than 20%, in both directions.
This is not tax advice. The figures below are illustrative placeholders to show you the mechanics of the calculation — confirm actual rates and deductions with a CPA before you make a decision.
The 'Add 20%' Myth: Why It's Lazy Math
The 20% rule assumes every consultant has the same tax situation, the same benefit needs, the same bench risk, and the same entity overhead. None of that is true.
A W-2 consultant with employer-sponsored health insurance and steady full-time placements has a very different cost structure than a C2C consultant running an S-corp, paying for their own insurance, and absorbing two unpaid weeks between contracts. Treating both like interchangeable math with one multiplier is how people end up underpricing their C2C rate — or walking away from a perfectly good W-2 offer because they compared it to the wrong number.
What a W-2 Bill Rate Actually Pays You
On a W-2 arrangement, the staffing firm (or the client, if direct) handles employer-side payroll taxes, often provides benefits, and may offer PTO. Your pay rate is lower than the bill rate because the firm is absorbing those costs and taking its margin.
- Employer payroll taxes (FICA match, FUTA, SUTA, workers' comp) are paid by the employer, not deducted from your check — but they still come out of the bill rate before your pay rate is set.
- Benefits (health insurance, 401k match, PTO) may be available, reducing what you'd otherwise spend out of pocket.
- No separate business entity, no corporate tax filing, no bookkeeping overhead.
- Unemployment eligibility between contracts, which C2C consultants generally do not have.
Your W-2 take-home is lower per hour than the bill rate, but it's also more predictable, with fewer moving parts you have to manage yourself.
What a C2C Bill Rate Actually Costs You
Corp-to-corp looks like a straight pass-through of the bill rate to your entity, minus the staffing firm's margin. It isn't. You're now the employer, which means you carry costs a W-2 arrangement hides from you.
- Employer-side payroll taxes on your own salary if you run payroll through your entity — the same categories a W-2 employer pays, now your responsibility.
- Benefits you buy yourself: health insurance, disability coverage, retirement contributions.
- Entity costs: state filing fees, registered agent fees, a CPA or bookkeeper, business insurance (E&O or general liability, often required by the client or the staffing firm).
- Unbilled time: no PTO, no sick days, no paid holidays unless you build them into your rate.
- Bench risk: gaps between contracts are unpaid, and C2C consultants typically don't qualify for unemployment the way W-2 employees do.
None of this means C2C is a bad deal. It means the bill rate is not your take-home, and the gap is wider — or narrower — than 20% depending on your specific cost structure.
Running One Rate Through Both Models
Here's an illustrative example only — not a quote of actual tax law or a guarantee of what you'd see on a real contract. Confirm every figure with a CPA before using it to price a rate.
| Factor | W-2 (illustrative) | C2C (illustrative) |
|---|---|---|
| Bill rate | $100/hr | $100/hr |
| Employer payroll tax burden | Absorbed by employer, not visible to you | You absorb this on your own entity payroll |
| Benefits cost | Partially or fully covered | Fully out of pocket, bought separately |
| Entity admin (filing, bookkeeping, insurance) | None | Recurring annual cost, varies by state |
| PTO / paid holidays | Often included | Unpaid unless built into your effective rate |
| Bench time between contracts | May qualify for unemployment | Typically unpaid, no unemployment eligibility |
Once you load in entity overhead, self-funded benefits, and realistic bench time, a $100/hr C2C rate can land close to — or even below — what a well-benefited W-2 offer nets you per hour. Other times, especially for consultants who stay booked year-round and run a lean entity, C2C comes out comfortably ahead. The only way to know which camp you're in is to run your own numbers.
The Real Break-Even Question
Instead of asking ‘what percentage should I add,’ ask these questions before comparing offers:
- How many unpaid weeks per year do I realistically expect on the bench?
- What does my own health insurance and disability coverage cost per month?
- What are my actual entity costs — state fees, CPA, insurance — on an annual basis?
- Am I replacing employer-matched retirement contributions out of pocket?
- Does the W-2 offer include PTO and paid holidays, and what's that worth per hour worked?
Answer those five, divide by your expected billable hours for the year, and you have a real break-even rate — not a guess borrowed from a forum post.
Talk It Through With People Who See the Numbers Daily
Every consultant's break-even is different, and the honest answer usually takes a conversation, not a spreadsheet template. The Josh Pros LLC team works with contract technology consultants across engagement models every week and can walk through how a specific bill rate compares across W-2 and C2C for your situation. Email contact@joshpros.com or visit https://joshpros.com to talk it through.
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