Career Growth

Understanding the Difference Between Freelance Income & W-2 Income

Ana Gotter
June 23, 2025

Freelancing is appealing. You can choose which projects you take on, have the flexibility to set your schedule, and work on diverse, challenging projects. There’s also the incredibly enticing and theoretical potential for unlimited income. 

There are plenty of freelancers clearing over six figures annually, including some who are hitting over $200,000. It’s easy to see why plenty of marketers and creatives are interested in shifting to freelance or fractional work.

When you’re making these decisions, however, it’s critical to keep in mind that if you’re invoicing for $100,000 a year as a self-employed person, it is far from equal to what you’ll take home with a $100,000 salary from traditional employment. 

Speaking from 11+ years of freelance experience: What you’re invoicing for often sounds a lot more impressive than what you’re actually keeping after you account for business expenses, increased self-employment taxes, and the lack of benefits. 

We know this is a big decision, so in this post, we’ll transparently discuss the factors that cause this discrepancy. We’re also going to look at two different examples of what you’re taking home based on invoiced freelance work and full-time income, and discuss other pros and cons to keep in mind when you’re considering a freelance career. 

The Sometimes-Forgotten Costs of Freelancing 

There are multiple costs that come with freelancing and business ownership, with some being more “hidden” than others. While they vary significantly depending on your business structure and the choices you make, they can all be significant. 

1. Business Expenses 

In my experience, many new freelancers underestimate what they’ll be spending on business expenses. And while you can deduct business expenses from your taxable income, they can still eat into your profit.

Here are a few examples of common business expenses:

  • Credit card and payment transfer fees: You’re looking at around $15-20 flat for wiring fees, and around 2.9% of a transaction + $0.30 when processing credit card payments through Stripe. 
  • Marketing: Think your website, business cards, professional email, and more. I pay around $130 every other year for site hosting, for example. 
  • Professional services: Paying a lawyer to review a contract can cost a few hundred, and I pay an average of $1,500 a year to have an accountant file my business and personal tax returns. 
  • Continuing education: The best business owners continually invest in ongoing growth through online courses, conferences, and professional communities like Superpath. I typically spend at least $1,000 a year on continued education. 
  • Software: You’ll likely need paid subscriptions for invoicing, payroll, communication, and potentially project management software. I pay around $80 for Freshbooks, $20 for Slack, and $11 for Asana monthly. I also have annual subscriptions to tools like Grammarly ($139) and Claude ($200). 

While you can find ways to reduce costs, it’s not possible to eliminate them entirely. 

2. Lack of Benefits 

There are a lot of benefits that come with conventional, full-time employment, including:

  • Retirement contribution matches, which are often around 4-6% of your salary. 
  • Full or partial health insurance premiums, the average flat cost of which is around $8,591 per year for an individual. 
  • Tuition assistance or student loan payments, which can provide opportunities for continued education.
  • Additional benefits like employer-covered or company group life insurance, wellness stipends, and more.  

These benefits can have a significant financial impact. If you’re looking at an extra $4,000 a year in retirement match and even $6,000 in health insurance premiums covered on a $100k salary, you’re looking at a $10,000 benefits value. 

You also want to think about factors like unemployment tax or paid family leave if your state offers it. Unless you’re paying unemployment taxes as a self-employed individual (which can be done through payroll taxes if your business pays you a salary), you likely won’t be eligible for these benefits. 

3. Self-Employment Taxes 

You pay more taxes when you’re self-employed, because you pay both the employer and the employee portion of FICA taxes in addition to standard income taxes. 

You’ll need to make at least quarterly payments for your federal and potentially state taxes. If you pay yourself a salary through your business, which I do, you’ll also pay payroll taxes. 

Here are the basics for federal taxes:

  • If you’re traditionally employed with W-2 income, you and your employer split your FICA taxes. You pay 7.65%, and your employer matches that. 
  • If you’re self-employed, you pay the entire 15.3% FICA tax yourself. 

As a disclosure: The exact breakdown of taxes varies significantly depending on how you file them. There are ways to potentially reduce your tax burden, such as electing to be taxed as an S corporation (which I do). These options all have their own pros and cons, however, so a financial professional can help you decide what’s right for you.  

The Financial Benefits of Freelancing 

There are clear financial costs of freelancing even before accounting for the need to find new clients and keep work flowing. That said, there are also plenty of financial benefits that are worth considering, too. 

1. High Earning Potential 

The high earning potential for freelancers is real. I can say confidently that I make more as a freelancer than I would in almost all content-focused roles, even after you account for the additional financial costs that come with self-employment. 

While the feast and famine cycle can be a real struggle, in theory you can always work longer hours a few days a week or sacrifice a weekend to make more money. 

High income isn’t a guarantee as a freelancer; many people do struggle, and you can have income drop off quickly even if you had a busy month before. However, the average freelance content marketer who makes at least 50% of their income through freelancing makes an average of $108,319

2. Your Eggs Aren’t All in One Basket 

Most people believe that self-employment is inherently riskier than traditional employment. I’ll vehemently disagree every time.

Yes, freelance income can be a rollercoaster. I call it “the revolving door of freelancing”— some  churn is inevitable. And while it never feels good to lose a client, it doesn’t hold a candle to losing your singular source of income if you’re laid off. 

This is an evergreen advantage, but it can become particularly helpful during a potential recession. I’ve strategically diversified my business so I have clients in different countries and industries, hedging my bets. 

I had several hospitality clients, for example, that all went down like dominoes on March 12, 2020, but my healthcare and SaaS clients actually increased our scope of work. If I’d accepted a full-time position that I’d been offered at one of the hospitality companies, I’d have been left without income in a terrible job market. 

3. Potential for Work-Life Balance 

Work/life balance can be difficult as a freelancer (again, speaking from experience), but it truly is what you make of it.

I know plenty of freelancers who prefer to only work three days a week, and they make enough to keep their bills covered. That is a financial advantage: The theoretical ability to earn income on your terms. 

What’s the Actual Difference in Income?

We know that there are multiple factors that can impact how much you take home, but that’s not the same as seeing a clear, even breakdown. 

We wanted a clear answer, so in this section, we’ll compare $100,000 of W-2 income with average traditional benefits against $100,000 of invoiced freelance work. 

How We Got These Numbers 

A few notes to keep in mind: 

  • We’re using the 2024 US tax code for this breakdown, filing as a single person with no dependents and taking the standard deduction. 
  • Tax brackets vary significantly depending on your income threshold and factors like your filing status, so again— this is just an example. 
  • We’re using benchmark data for different costs and expenses when available; real-life costs will vary. 
  • We’re using a very conservative figure for business expenses, assuming that the freelancer is aggressively keeping costs low. 
  • These breakdowns only account for federal taxes; don’t forget about state taxes if they apply to you. 
  • These numbers were reviewed by Jeff Kurtz, a licensed CPA who works regularly with small businesses and W-9 income. 

W-2 Pay for $100,000

If you’re offered a $100,000 salary, here’s what that would actually look like if you’re using the standard deduction: 

  • You’ll pay $12,249 in federal income taxes. 
  • You’ll pay $7,650 in FICA taxes. 
  • Your employer will pay $7,650 in FICA taxes themselves, along with a federal and state unemployment tax
  • You’ll take advantage of your employer’s 5% income match, gaining $5,000 in value.
  • Your employer covers 75% of your $8,951 annual insurance premium, saving you $6,613. 
  • Your employer offers $2,000 a year for you to attend conferences or take online courses. 
  • Your employer offers a $1,000 a year stipend to cover home office expenses. 

Here’s what these numbers mean: 

  • You’ll pay a total of $19,899.20 in federal taxes.  
  • Your income after your portion of federal taxes alone: $80,100.81
  • Your annual take home pay after the taxes you pay, health insurance premiums, and retirement contributions: $72,863. 
  • The value of your total compensation, including benefits from your employer and after you’ve paid your federal taxes: $107,364.

Self-Employed Pay for $100,000 Invoiced 

If you invoice for $100,000 as a freelancer, here’s what that may look like if you’re filing as a solopreneur or a single-member LLC:

  • You’ll pay annual business expenses cost a total of $6,000, which includes: 
    • $1200 for software. 
    • $700 for wire transfer and credit card fees. 
    • $100 for business filing fees. 
    • $1000 for continued education costs. 
    • $400 for marketing costs. 
    • $2000 a year for professional services.
    • $600 a year for business and liability insurance. 
  • You’ll deduct the $6,000 in expenses from your taxable income, reducing your taxable income to $94,000.
  • You’ll pay a total of $13,281.71 for payroll FICA taxes (which is $6,640 each); the “employer” portion is deductible. 
  • You’ll put $10,000 into a pre-tax retirement account, like a 401K
  • You’ve paid $8,951 in annual health insurance expenses, which is tax deductible. 
  • You can take the qualified business income deduction of $18,800, and a self employment tax deduction of $6,640.  
  • You’ll pay a total of $3,968 in personal income taxes.

Here’s what these numbers mean: 

  • You pay a total of $17,250.75 in federal taxes. 
  • You also have paid $6,000 in business expenses, paid $8,591 in premiums, and put $10,000 into retirement, which lowered your overall tax burden. 
  • Your amount of income that will hit your account after you’ve paid business expenses, retirement contributions, taxes, and health insurance premiums: $57,799.
  • The ultimate net value (the income you keep and your retirement contributions): $67,799. 

The Difference 

The numbers are clear: There’s a big gap in $100k of invoiced freelance work compared to a $100k W-2 salary. 

Even with deductions for health insurance and retirement contributions, you’ll take home $72,863 from your W-2 job, which is more than the post-tax, post-expense self-employed final income of $57,799 (plus $10,000 in retirement contributions for both types of income). 

Once you add in the value of benefits and employer-paid federal taxes, you’re looking at a $30,000+ gap in financial value between the two. And this is before you account for any applicable state taxes. 

It’s for this reason that I’ve always told new or prospective freelancers that they should aim to make at least 30% more than their desired “salary” if they want to break even. It’s not a hard rule, but it’s a solid starting point that can help you account for some freelancing costs. 

What Other Professionals Want You to Know 

We talked to several content marketers who have worked both full-time and freelance jobs. Some shifted from full-time to freelance, and some made the opposite leap. Here’s what they want you to know.

Be Mindful of Anchor Clients 

Anna Sonnenberg is a B2B SaaS writer who shifted from a full-time employee to a freelancer over a decade ago. She drew up a business plan beforehand and was surprised at how much she could earn as a freelancer— and how she had access to so many more opportunities. 

Her biggest piece of advice was to be careful of relying on a single large client: 

“It's really common to try to land one big anchor client that you can rely on for consistent income (and then build out your roster with smaller clients). I've done this a couple times over the years, and it's always created more problems than it solved. Teams can decide to take content in-house or end projects at a moment's notice, leaving you with a huge income gap to fill. To avoid this, I recommend making sure that no retainer client is more than 25% of your monthly income.”

Do Both Simultaneously 

Brooklin Nash is a co-owner of Beam Content, and has switched back from freelancing to full-time work and now self-employment again. 

And his words of wisdom for someone who wanted to make the switch to full-time self-employment? Do both simultaneously first.

“At risk of sounding like a broken record: do both full-time and contract work for awhile. Not forever, but just enough to (a) build yourself a bit of a cushion, and (b) prove out that you can replace your full-time income with room to spare. I spent two years doing both simultaneously. No, it wasn't sustainable for the long-term. But, yes, it gave me a new-found confidence to increase my rates, narrow my offer, and home in on better-fit clients.” 

Choose What’s Best For You Now 

Whatever is right for you now— whether it’s freelance or full-time work— may change in the future. And if it does, that’s ok! 

Jordan Rosenfeld worked exclusively as a freelancer for over 20 years, and enjoyed the flexibility and raising her son from home. A year and a half ago, she decided to accept a full-time position as a senior writer with an existing client. She still freelances on the side, but enjoys the stability of full-time employment.

It was understandably a tough decision: 

“I agonized over the decision. I would not have sought out the job—it came to me. It was a company I had been freelancing with… My husband and I were both self-employed at the time, paying immensely out of pocket for health benefits for our family of three, and the idea of having those benefits largely taken care of was very compelling… That, coupled with uncertainty about the economy knowing that we would be going into an election season not super long after I took the job, led me to consider for the first time taking W-2 work again… I’ve learned and gained a lot and don’t regret it.”

Set Aside Cash

While this post is focused on a U.S. perspective, freelancers and business owners share similar financial considerations in many other countries, too. Ray Slater Berry is the founder of dslx, which offers a variety of marketing services. He’s based in Spain, and noted that there are financial costs that come with freelancing: 

“I'm a freelancer in Spain, and honestly we don't get much support over here… We pay high taxes, from €0, and you still have to pay to be autonomo (freelance) even if you don't earn anything in that month. Really, I'm in the wrong country to be a freelancer, but I love life here outside of that system.”

Ray recommends setting aside cash each month and getting it into a savings account quickly to account for this. 

Bridget Poetker, co-founder of Creative Little Planet, also stressed that “stacking money for runway” was essential, and that there were so many challenges like task switching, knowing what to charge, and knowing when you have enough work. But, like Ray, she also said it’s worth it:

“I'm making more money on a w-9 than a w-2. I never thought that would be the case. I also feel more secure having multiple income streams from clients vs all my eggs in one basket with a full-time job.” 

Deciding if Freelancing is Right for You 

Freelance and fractional work can present exceptional opportunities, but it isn’t right for everyone. 

It’s an incredibly personal decision that depends on your tolerance for risk, personal preference, and your financial situation.

There are plenty of creatives who work full-time jobs for the stability and the benefits but who freelance on the side for additional income. And there are some who have decided that they want to commit to a full-time job for any number of reasons— often including the financial benefits. 

There’s no one right answer, and with clear information about the financial pros and cons, it can be much easier to make the best choice for you.

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