Is it worth it? Certainly yes, if you can charge enough for your services. When you start to think about what you should charge for your services, you need to make a minimum of 8% more per hour to cover the self-employment tax, assuming that the state and federal income tax will be the same regardless of whether you are an employee or an employer. But that doesn’t take account of the fringe benefits that you are losing. As a W-2 employee, you are eligible for unemployment insurance, you may be eligible for matching retirement contributions, free or partially paid for health insurance, paid sick days and vacation days, and other fringe benefits. When you are self-employed, you need to charge enough for your services that you can cover these other costs, such as being unable to work for a week due to illness, or wanting to take a family vacation. No one can tell you how much to charge for your services, but if you can’t charge at least 25 to 40% more than your previous gross salary, then it may not be worth doing.
Then separately, the question is how much of that income to set aside for taxes. Depending on your income and other tax situations, you will need to set aside between 20% and 30% for federal taxes, and 3% to 10% for state taxes, depending on which state you live in.
