One sentence in the industrial-security rule decides more than any tax table. 32 CFR 117.10(a)(7): contractors “will not submit requests for determination of eligibility … for individuals who are not their employees or consultants; nor … for employees of subcontractors.”

Read it twice. A prime may sponsor its employees and consultants, not an employee of another firm. Corp-to-Corp makes you exactly that: three prices for one requisition are three legal relationships, and only two reach a clearance the ordinary way.

Can you hold a security clearance as a 1099 contractor?

Short answer. Yes, if you are paid directly as an individual. The rule calls that person a consultant and treats them as the hiring contractor’s employee.

The usual answer, that a 1099 worker cannot hold a clearance, is wrong. 32 CFR 117.3 defines a consultant as “an individual under contract, and compensated directly, to provide professional or technical assistance to a contractor.” Two words carry it: individual, directly. Section 117.10(m)(4) deems a consultant “an employee of the using contractor for compliance with this rule,” which scopes it: an employee for the security rule, not for tax. See can a company sponsor a security clearance and our NISPOM explainer.

One restriction few price in: 117.10(m)(1) bars a consultant from classified access “off the premises of the using (hiring) contractor except in connection with authorized classified visits,” and 117.10(m)(3) makes that contractor the consumer of the services. Their premises, their schedule, and that is where the IRS control test starts to lean, on our reading. More at managing your clearance as a 1099 sub-contractor.

Why does Corp-to-Corp break the sponsorship chain?

Short answer. Your LLC is a subcontractor, and the prime may not submit for a subcontractor’s employees. Nor may an entity apply for its own eligibility determination.

117.3 defines a subcontractor as “a supplier, distributor, vendor, or firm that enters into a contract with a prime contractor to furnish supplies or services to or for the prime contractor or another subcontractor.” Your single-member LLC is a firm. A contractor, same section, is an entity “that has been granted an entity eligibility determination by a CSA,” which a new LLC is not. So 117.10(a)(7) stops the prime filing for you.

You cannot open that door yourself. 32 CFR 117.9(a)(10): “a contractor or prospective contractor cannot apply for its own entity eligibility determination.” Someone else must sponsor it, and 117.9(a)(4) bars access until the determination is made. If a customer did, 32 CFR 117.7(b) would require an appointed Facility Security Officer and Insider Threat Program Senior Official, each of whom must under 117.7(b)(1)(iv) be investigated and hold eligibility at the entity’s level. The exclusion route at 117.7(c) covers other key management personnel, not those two seats.

Asking is not futile; the rule sometimes compels the ask. Under 32 CFR 117.17(a)(2)(ii), where a prospective subcontractor “does not have the appropriate entity eligibility determination,” the prime “will request that the CSA of the subcontractor initiate the necessary action,” and 117.17(a)(3) tells it to “allow sufficient lead time” for an uncleared bidder. Two paragraphs of 117.9 point the same way: (l) leaves the CSA to decide when self-employed consultants should “be considered for an entity eligibility determination,” and (m) lets a contracting activity request a limited determination for “a single, narrowly defined contract.” None is self-service, but all are worth raising.

Two things falsify this, both in the regulation. A subcontractor holding its own eligibility determination sponsors its own employees normally, and 117.7(n) lets a contractor ask its Cognizant Security Agency to waive a provision, effective only once approved. None of this says self-employed people cannot hold clearances; the rule governs who may submit, and facts decide, not labels.

What does each structure cost in payroll tax?

Short answer. A W-2 worker pays one half of Social Security and Medicare, the employer the other. A 1099 worker pays both halves.

IRS Publication 15 (2026) puts Social Security at “6.2% … each for the employer and employee (12.4% total)” and Medicare at “1.45% … each … (2.9% total).” The single-digit rates are per side; 12.4% and 2.9% are one worker’s combined cost. 26 U.S.C. 1401 puts those combined rates on a self-employed person alone.

Three 2026 ceilings sit close together and none measures the same thing. The Social Security wage base is $184,500, capping wages subject to the 12.4% piece. The 0.9% Additional Medicare Tax is withheld above $200,000 of wages, employee-only; on self-employment income the thresholds are $250,000 joint and $200,000 otherwise, and 26 U.S.C. 1401(b)(2)(B) reduces those, not below zero, “by the amount of wages taken into account” for the FICA version. Wages eat the threshold first, the trap for anyone switching mid-year. The 199A threshold starts at $201,750 of taxable income.

The self-employed side gets two offsets. Schedule SE, in its 2025 revision, the latest published, multiplies net earnings by 92.35% before the rate applies, then deducts half the tax, so the real bite is under a flat 15.3%.

Corp-to-Corp is where readers assume a saving not yet made. The IRS treats a single-member LLC that filed no election as “an entity disregarded as separate from its owner,” taxed on self-employment earnings “in the same manner as a sole proprietorship.” Plain LLC, no S election, and your payroll-tax position is the 1099 column. The reasonable-wage split arrives only when the entity is taxed as a corporation, which is what puts you inside 3121(d)(1) as an officer. Unemployment tax forks the same way: none on a disregarded LLC with no employees, owed by the entity after an S election. Every figure in the Corp-to-Corp column assumes that election.

Which structure wins on deductions and retirement?

Short answer. Self-employment income gets a 20% deduction wages can never claim, and the whole retirement ceiling rather than the $24,500 an employee defers.

Section 199A allows up to 20% of qualified business income. P.L. 119-21 struck its 2025 termination and added a $400 minimum (26 U.S.C. 199A(i); IRS Revenue Procedure 2025-32). For 2026 the thresholds are $201,750 single, $403,500 joint. Read 199A(d)(2)(A) whole: it adopts the field list in 26 U.S.C. 1202(e)(3)(A) “applied without regard to the words ‘engineering, architecture,'” then keeps going, “or which would be so described if the term ’employees or owners’ were substituted for ’employees’ therein,” extending the reputation-or-skill catch-all to owners. What keeps that from swallowing every solo LLC is a regulation, not the statute: Treas. Reg. 1.199A-5(b)(2)(xiv) confines it to endorsement income, image licensing and appearance fees.

Do not carry our NISPOM word into the tax code: being a 117.10(m) consultant says nothing about section 199A, which turns on the field the business is in. The same regulation defines consulting as “the provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems,” and closes: “Services within the fields of architecture and engineering are not treated as consulting services.” A cleared engineer, developer or analyst working as a 117.10(m) consultant is not in a specified service trade. Someone whose deliverable really is advice can be: worth an hour of a CPA’s time.

Retirement is the other real gap. IRS Notice 2025-67 sets the 2026 elective deferral limit at $24,500, the slice a W-2 employee controls, and total annual additions at $72,000. On self-employment income both sides are yours, but $72,000 is a ceiling, not an allowance. The employer half of a one-participant 401(k) is capped at “25% of compensation,” and for the self-employed that compensation is earned income net of half the self-employment tax and of the contribution itself, a circular definition landing near a fifth of net earnings. Filling $72,000 takes net earnings near $250,000, our arithmetic off the IRS rate table. An S corporation does not escape payroll tax through distributions: 26 U.S.C. 3121(d)(1) makes any corporate officer an employee for FICA, and the IRS position is that reasonable wages come first.

Why will a cleared staffing firm not run you as a 1099?

Short answer. Because the safe harbor against misclassification liability is switched off by statute for technical specialists supplied to another business.

IRS Publication 15-A (2026) states that Section 530 relief “doesn’t apply to a technical service specialist you provide to another business under an arrangement between you and the other business,” a specialist being “an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker.” The IRS repeats it for “third party arrangements.” The party losing relief is the firm that supplies you onward, not the prime receiving the work.

The adjacent sentence cuts the other way: the limit “doesn’t affect the determination of whether such workers are employees under the common-law rules,” and a company contracting directly with a specialist for its own business “may still be entitled to the relief provision.” The carve-out allocates risk; it does not decide status. Status runs on the control test, which the IRS describes as having “no ‘magic’ or set number of factors,” weighting instructions about “when, where, and how to work” but resting on whether the business “retained the right to control the details of a worker’s performance.”

Minimum wage and overtime run on a third test, unsettled as of July 2026: the Department of Labor proposed rescinding its 2024 rule at 91 FR 9932 and has issued no final rule, though that rule “remains in effect for purposes of private litigation.” Three frameworks, none deciding the others.

What is the benefits load actually worth?

Short answer. At the 90th wage percentile, employers spent $89.70 per hour worked in March 2026: $60.39 of wages, $29.31 of benefits. At the median it is $10.63 on $24.15, so the gap depends on where you sit.

The Bureau of Labor Statistics Employer Costs for Employee Compensation release for March 2026, USDL-26-0827, covers all private-industry workers at a wage percentile, every industry, cleared and uncleared alike. No BLS series measures cleared employment, so this is a proxy for the private-sector benefits load, not a cleared engineer’s, and it measures employer spend rather than what a package is worth to you. The all-worker average, $14.01 of $46.60 per hour or 30.1%, leans toward lower-wage jobs; the 90th-percentile split is still all-industry.

Inside that $29.31: $8.04 of paid leave, $6.77 of insurance, $6.16 of legally required benefits (Social Security, Medicare, unemployment insurance, workers’ comp), $4.20 of retirement and savings, $4.14 of supplemental pay. Paid leave, insurance and supplemental pay vanish on a 1099; retirement you rebuild, larger. The legally required line does not vanish so much as move: its biggest piece is the employer’s half of Social Security and Medicare, which returns as your own self-employment tax, so do not count it twice in a target rate. Company float through a funding gap goes too: pay during a shutdown. No dataset of bill rates by structure is published; what is knowable is how the prime builds its number, the wrap rate.

So which one actually pays more?

Short answer. For most cleared professionals, W-2. The 1099 and Corp-to-Corp advantages are capped and conditional. The benefits load and the sponsorship path are neither.

We run a cleared job board; treat this as a disclosed interest, not neutrality, and run the arithmetic past someone who can see your whole return. The entrepreneurial structures win in a narrow band: you bill well above the wage base, your taxable income sits under the 199A thresholds, and your net earnings fill the retirement ceiling. Outside it, the 20% deduction and the retirement headroom rarely cover $29.31 an hour of benefits that already contains the employer’s half of Social Security and Medicare rather than sitting on top of it.

Structure is the last decision, not the first. Before it comes what the clearance adds: what a security clearance is worth, and the wait to bill on a cleared hire. Someone who picks Corp-to-Corp for the tax outcome, then finds the prime cannot file their eligibility request, has optimized the smaller number and lost the larger one.

Frequently Asked Questions

Can I hold a security clearance as a 1099 contractor?

Yes, if paid directly as an individual. 32 CFR 117.3 defines a consultant as an individual under contract and compensated directly; 117.10(m)(4) treats one as an employee of the using contractor for compliance with that rule. What is blocked is a prime submitting for a subcontractor’s employee.

Can my LLC get its own facility clearance?

Not on your own initiative. 32 CFR 117.9(a)(10) says an entity cannot apply for its own eligibility determination; a contracting activity or cleared contractor must sponsor it, and 117.17(a)(2)(ii) directs a prime to ask the CSA to start that action for an uncleared prospective subcontractor.

Does Corp-to-Corp pay more than W-2?

The hourly rate is usually higher: employer payroll taxes and benefits are no longer inside it. Whether it nets more turns on the 20% deduction, the 15.3% self-employment burden, and how much of the retirement ceiling your net earnings let you fill. No dataset of cleared bill rates by structure is published, so treat any quoted premium as a negotiating position.

What is the self-employment tax on a cleared contract rate?

26 U.S.C. 1401 sets 12.4% Social Security plus 2.9% Medicare, 15.3% combined, on one person rather than split with an employer. Schedule SE applies it to 92.35% of net earnings and deducts half the tax. The 12.4% piece stops at the 2026 wage base of $184,500; an extra 0.9% applies above $200,000 of self-employment income, $250,000 joint, thresholds 1401(b)(2)(B) cuts by any wages already counted.

If I switch from W-2 to 1099 at the same company, do I lose my clearance?

Not automatically; it turns on facts a security officer must check, not the tax form. If the company keeps paying you directly as an individual, 32 CFR 117.10(m) treats you as its employee for security administration. If it routes through your own entity, the sponsorship basis changes and 117.10(a)(7) applies. Under 117.10(j), access may resume on CSA guidance where eligibility and a current investigation are intact. Ask your FSO, and see moving a clearance to a new contractor.