Corp to Corp vs W2 Calculator: Which Contracting Structure Pays More in 2026

The Corp to Corp Question Every Contractor Faces

You are a software developer earning $90 an hour as a W2 employee. A recruiter offers you a contract that pays $120 an hour --- but it is corp to corp. That means you need to have your own S-Corp or LLC, and the client pays your company, not you personally.

On the surface, $120 vs $90 seems like a no-brainer raise. But corp to corp introduces a new layer of complexity: your corporation receives the income, pays you a salary or distributes profits, and the tax treatment changes in ways that can either save you thousands or cost you dearly depending on how you structure it.

What Corp to Corp Actually Means

When a recruiter says they need to work with you corp to corp, it means both parties are businesses, not individuals. The client is a company (or staffing agency), and you are a business entity --- typically an S-Corp or single-member LLC. Your corporation invoices the client, receives payment, and then compensates you as the owner/employee.

The key difference from a standard 1099 arrangement is that with a corporation (especially an S-Corp), you can split your income between salary and distributions. Only the salary portion is subject to FICA taxes (Social Security and Medicare). The distribution portion avoids FICA entirely, which is the primary tax advantage.

The S-Corp Tax Advantage: Real Numbers

For a contractor billing $120/hour, working 40 hours/week for 50 weeks, gross corp income is $240,000/year. After $15,000 in business expenses, net income is $225,000. With a reasonable salary of $150,000, FICA is due only on the salary portion --- saving approximately $8,841/year compared to standard 1099 treatment. After accounting costs, net savings are roughly $6,800/year.

The Hidden Costs of Corp to Corp

Before forming an S-Corp, factor in: annual accounting ($1,200-$2,500), payroll processing ($480-$960/year), registered agent fees ($50-$300), and potential state franchise taxes (California: $800/year minimum).

The Break-Even Point

The S-Corp structure starts saving you money when net self-employment income consistently exceeds $50,000-$60,000 per year. Savings become significant above $80,000 and very compelling above $120,000.

Net Income	1099 FICA Tax	S-Corp FICA Tax	Estimated Savings
$50,000	$6,928	$6,898	~$30 (not worth it)
$75,000	$10,391	$9,547	~$844
$120,000	$16,626	$13,173	~$3,453
$200,000	$27,709	$20,295	~$7,414

For more paycheck comparisons, check out the W2 paycheck calculator and the military pay calculator.