Insights
W2 vs Corp-to-Corp: Which Pays More?
On a W2 contract the staffing agency employs you, withholds your taxes and can offer benefits. On corp-to-corp you invoice through your own company and handle taxes, insurance and benefits yourself. C2C rates are typically 15–25% higher, but that premium exists to cover costs a W2 employer would otherwise absorb — so the higher rate is often not more take-home money.
The core difference
W2 and corp-to-corp are not two ways of describing the same job. They are genuinely different legal relationships, and the difference determines who pays your taxes, who carries insurance, and who is liable if something goes wrong.
On W2, you are an employee of the staffing agency. On corp-to-corp, you are a business selling services to another business.
| W2 contract | Corp-to-corp | |
|---|---|---|
| Your employer | The staffing agency | Your own LLC or S-Corp |
| Income tax | Withheld from each paycheque | You pay quarterly estimates |
| FICA / self-employment tax | Split — employer pays half | You pay all ~15.3% |
| Health insurance | Available through the agency | You buy it |
| Unemployment insurance | Covered | Generally not eligible |
| Workers compensation | Agency carries it | You carry it |
| Business expenses | Rarely deductible | Deductible against business income |
| Admin burden | Almost none | Entity, bookkeeping, filings, insurance |
| Typical rate | Baseline | 15–25% higher |
Why the C2C rate is higher
The premium is not generosity. It is the employer costs being handed to you.
The largest single item is self-employment tax. As a W2 employee you pay 7.65% in FICA and your employer pays the matching 7.65%. On corp-to-corp you pay both halves — roughly 15.3% on net self-employment income up to the Social Security wage base.
Then add health insurance bought at individual rates, business liability and professional indemnity cover, accounting fees, and the cost of maintaining the entity itself.
A worked comparison
Take a W2 offer at $60 per hour against a corp-to-corp offer at $72 per hour — a 20% premium that looks clearly better on paper. Over a 2,000-hour year:
| W2 at $60/hr | C2C at $72/hr | |
|---|---|---|
| Gross | $120,000 | $144,000 |
| Employer-side FICA you now pay | — | −$9,180 |
| Health insurance | Agency plan | −$9,000 |
| Liability & professional insurance | — | −$1,500 |
| Accounting, entity, filings | — | −$2,000 |
| Paid time off / holidays | Varies by agency | −$0 (unbilled time is unpaid) |
| Rough net position | ~$120,000 | ~$122,300 |
A 20% headline premium produced roughly a 2% real difference — before accounting for unpaid time off, gaps between contracts, and the hours you now spend on admin.
These are illustrative figures, not tax advice. Your actual position depends on your state, your entity structure, your deductions and how much you bill. Talk to an accountant before choosing.
When corp-to-corp genuinely wins
- You bill at a high rate, where the fixed costs of the entity are spread thin.
- You have real business expenses — home office, equipment, software, travel — that become deductible.
- You have health coverage through a spouse, removing the largest single cost.
- You run several clients at once, which W2 arrangements rarely accommodate.
- You already have the entity, the accountant and the insurance in place.
When W2 is the better deal
- It is your first contract role and you want predictable net pay.
- You need health insurance through the engagement.
- You value unemployment eligibility between contracts.
- You do not want to run a business alongside your job — this is a real cost, not a small one.
- The rate premium on offer is under roughly 15%, at which point C2C rarely pays.
One thing to watch
Worker classification is a matter of law, not preference. The IRS and Department of Labor look at the actual working relationship — who controls how the work is done, whether the work is integral to the client’s business, and how permanent the arrangement is.
If an agency pushes you toward corp-to-corp for a role that functions exactly like employment, that is their cost saving and your risk. A reputable agency assesses classification honestly and will tell you when C2C is not appropriate, even if it costs them margin.