Understanding Your True Gig Hourly Rate
Gig workers often overestimate their earnings because they look at gross pay rather than accounting for the significant expenses of self-employment. Gas, vehicle wear, self-employment taxes, and health insurance can reduce your effective hourly rate by 30-50% compared to your gross rate.
What Gig Workers Often Miss
Unlike W-2 employees, gig workers pay both the employee and employer portions of FICA taxes (15.3% total vs. 7.65% for W-2 workers). They also pay for their own health insurance, vehicle depreciation, gas, and phone costs out of pocket. The IRS standard mileage rate of $0.70/mile in 2025 reflects the true cost of using your vehicle.
Frequently Asked Questions
What is self-employment tax and why is it 15.3%?â–¾
Self-employment tax covers Social Security (12.4%) and Medicare (2.9%). W-2 employees split this with their employer, each paying 7.65%. As a gig worker, you pay both halves. You can deduct half of SE tax from your income tax, which slightly reduces the effective burden.
Should I include drive time in my hours?â–¾
Yes. For an accurate true hourly rate, include all time spent working: driving to pickup locations, waiting for orders, driving to customers, and any time spent on the app. A common mistake is only counting active delivery or ride time, which inflates the hourly rate.
Can I deduct gig expenses on my taxes?â–¾
Yes. As an independent contractor, you can deduct business expenses on Schedule C including mileage (standard rate or actual expenses), phone costs (business percentage), vehicle maintenance, and health insurance premiums. These deductions reduce your taxable income but not the cash expense itself.
How does gig work compare to a regular job?â–¾
Gig work offers flexibility but typically requires higher gross earnings to match a W-2 job's total compensation. A gig worker earning $25/hour gross may only net $14-17/hour after expenses and taxes, equivalent to a W-2 job paying $16-19/hour with benefits included.
Calclypso Editorial Team
Reviewed by certified financial professionals. Last updated: April 2026. Expense estimates are averages and may vary by location and vehicle type.