Corp-to-corp contracting
How much higher does a C2C rate have to be?
The same agency offers you $85 an hour on its W-2 or $100 corp-to-corp. The second number is bigger. That is not the same as better.
The answer first
To match a $85/hour agency W-2, corp-to-corp has to pay about
$96.61 / hour
a premium of 13.7% over the W-2 rate
The $100 offer clears it by $3.39 an hour — about $6,500 a year over 1,920 billable hours.
The offered premium is 17.6%; the premium you need is 13.7%. That gap is the whole decision, and it is why “C2C pays more” is not an answer.
Worked for a single filer billing 1,920 hours, paying $9,600 a year for their own health cover against $2,400 on the agency plan, giving up a 3% match, and carrying $4,200 of insurance and entity costs. 1,920 hours is 48 weeks at 40 hours. Contract roles are quoted against 2,080, but almost nobody bills a full year — and on an agency W-2 the unbilled weeks are usually unpaid too. Your own figures will differ — run them.
Why the C2C rate is higher in the first place
It is not goodwill. Every item below is an employment cost the agency stops carrying the moment it contracts with your company instead of employing you.
- The employer half of FICA
- 7.65% of wages — 6.2% Social Security up to the wage base plus 1.45% Medicare with no ceiling. An employer pays this on top of your wages; a corp-to-corp contractor pays both halves as self-employment tax.
- Unemployment insurance and workers' compensation
- Both are employer obligations tied to employment. Contracting with your corporation instead of employing you removes them, and whether your own entity must carry workers' compensation for you depends on your state.Market source: Innovative Employee Solutions, Difference between W-2, 1099 and corp-to-corp workers — A staffing vendor describing standard practice, not a legal standard. Workers' compensation rules for owner-employees vary by state — check your own state's agency.
- Benefits administration and any employer-side insurance
- A W-2 staffing agency typically carries professional liability and workers' compensation for the people it places. Corp-to-corp moves that requirement to your entity, and clients commonly want certificates before you start.Market source: Kore1, W2 vs C2C vs 1099 — A recruiting firm's own comparison. Directionally consistent with other vendor sources, but every client's master services agreement sets its own requirements.
What you take on
| Cost | Annualised |
|---|---|
| General and professional liability insurance | $1,800 |
| Entity upkeep and a second tax return | $2,400 |
| Total | $4,200 |
Both are market estimates rather than published rates. Each says below where it came from and how far to trust it.
- General and professional liability insurance — $1,800 a year
- Clients and staffing firms commonly require both before onboarding, frequently at $1,000,000 per occurrence. The premium depends on your work, your limits and your state — this is a placeholder for a quote, not a quote.Market source: ADP WorkMarket, Independent contractor liability insurance: what you should know — A vendor describing common procurement practice. The $1M limit is widely cited but is a contract term, not a legal minimum, and premiums vary several-fold by trade and state.
- Entity upkeep and a second tax return — $2,400 a year
- State filing and franchise fees, a registered agent where required, bookkeeping, and preparation of an entity return on top of your personal one. An S-corp election adds payroll filings every quarter.Market source: UpCounsel, Corp to corp — A legal marketplace's overview. State fees are published per state and this site records them separately in the state guides; the bookkeeping and preparation element is an estimate.
Where the tax saving actually comes from
A single-member LLC is, by default, a disregarded entity: its income is reported on the owner's own return, generally on Schedule C, Profit or Loss from Business (Sole Proprietorship). Billing a client corp-to-corp does not change that. The self-employment tax is identical to a 1099 contractor's.
The saving attributed to corp-to-corp comes from electing corporate — usually S-corp — treatment, which lets part of the profit leave as a distribution rather than wages. That is a separate decision from how you contract, and a 1099 contractor with an LLC can make exactly the same election.
So the two decisions are separate and should be made separately. Whether to contract corp-to-corp is about the rate premium and who carries the insurance. Whether to elect S-corp is about profit, reasonable compensation and the cost of running payroll — the S-Corp breakeven calculator works that one out, and names what it leaves out.
If you are in a state with its own entity-level tax, that changes the election materially — California charges an S-corp 1.5% of net income with an $800 annual minimum. See the California guide.
Where these figures come from
Tax rules are cited to the IRS. What insurance and entity upkeep cost is market evidence from the sources below, each with the date it was checked — the best available, and still estimates. Get a written quote before relying on any of them.
- IRS, Single member limited liability companies — primary source, checked "For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and affirmatively elects to be treated as a corporation." Activities are reflected on Form 1040 Schedule C.
- IRS, Topic no. 751, Social Security and Medicare withholding rates — primary source, checked Employer and employee each pay 6.2% Social Security and 1.45% Medicare; the Additional Medicare Tax is employee-only
- Innovative Employee Solutions, Difference between W-2, 1099 and corp-to-corp workers — market estimate, checked Describes which obligations sit with the agency under each engagement model
- Kore1, W2 vs C2C vs 1099 — market estimate, checked Compares which party carries insurance under each engagement model
- ADP WorkMarket, Independent contractor liability insurance: what you should know — market estimate, checked Describes procurement review of general and professional liability policies, commonly at $1 million per occurrence
- UpCounsel, Corp to corp — market estimate, checked Sets out the administrative obligations that sit with the contractor's entity
What this page does not tell you
- Whether you are allowed to work corp-to-corp. If you are on a work visa, the employer-employee relationship your status depends on may be incompatible with billing through your own company. That is immigration law, not tax, and it is not a question to answer from a calculator — ask an immigration attorney before you restructure anything.
- Whether the engagement is properly classified. Putting a company name on the contract does not by itself make someone an independent contractor; the working relationship decides that.
- State taxes and workers’ compensation. Both vary by state, and whether an owner-employee must be covered is a state question.
- Your actual insurance premium. The figure above is a placeholder for a quote.
The full method is on the methodology page. These are planning estimates, not tax or legal advice — see the disclaimer. If a figure here is wrong, tell us and it gets corrected and logged.