Your Side Hustle's True Hourly Wage: Subtracting Expenses and Self-Employment Tax
October 21, 2026
Gig work looks attractive when the app shows earnings per hour, but the headline number ignores your expenses and taxes. Independent workers pay for fuel, vehicle wear, phone data, supplies, and platform fees, and they owe both income tax and self-employment tax on their profit. The true hourly wage is what remains after those costs, divided by all hours worked, including waiting time and unpaid tasks.
Take a delivery driver who earns $600 in tips and fees over 20 hours of work, driving 300 miles. At an assumed vehicle cost of 70 cents per mile (the all-in cost of fuel, maintenance, depreciation, and insurance), expenses are $210.
Skip the math and get your answer instantly:
Open the Tax Calculator →Step 1: Gross Earnings Minus Expenses
Gross receipts of $600 minus vehicle costs of $210 gives a net profit of $390 before tax. Hourly: $390 ÷ 20 hours = $19.50, versus a $30 gross hourly figure. If you also paid $15 for a phone data plan share, a $10 insulated bag, and platform fees of $20, the profit would fall to $345, or $17.25 an hour.
In the United States, the IRS standard mileage rate is an alternative way to deduct vehicle expenses; the rate changes annually, and it generally includes depreciation, fuel, and maintenance. Track your miles and expenses to keep an accurate record.
Step 2: Self-Employment Tax
Self-employed people pay 15.3% on 92.35% of net profit (up to the Social Security wage base) for Social Security and Medicare. On $390: 390 × 0.9235 × 0.153 = $55.10. Half of this is deductible when computing income tax. After SE tax, the profit is $334.90, or $16.75 an hour.
If you also have a full-time job on which Social Security tax is already withheld, the self-employment tax still applies on the side income, unless your combined earnings pass the wage base.
| Step | Amount | Per hour (20 hours) |
|---|---|---|
| Gross receipts | $600.00 | $30.00 |
| Vehicle expenses (300 mi at $0.70) | -$210.00 | -$10.50 |
| Net profit before tax | $390.00 | $19.50 |
| Self-employment tax (14.13%) | -$55.10 | -$2.76 |
| Federal income tax at 12% on (390 - 27.55) | -$43.50 | -$2.17 |
| After-tax income | $291.40 | $14.57 |
Step 3: Income Tax
Income tax applies to net profit after deducting half of the self-employment tax: 390 − 27.55 = $362.45. At a 12% marginal federal rate, that is $43.49. State taxes may add more. The final after-tax figure is $291.40, or $14.57 an hour. At a 22% bracket, the income tax would be $79.74 and the after-tax hourly wage $12.76. The result is under half the gross hourly figure advertised.
Plan to set aside 25% to 30% of net profit for taxes and make estimated quarterly payments if you expect to owe $1,000 or more.
Include Unpaid Time and Hidden Costs
Count waiting time between orders, unpaid travel to the starting zone, and administrative time. If those add 5 hours to the 20, the hourly wage falls to $11.66. Also consider wear on a personal car, higher insurance premiums for commercial use (check that your policy covers gig driving), and no benefits like paid sick leave or health insurance. A traditional job paying $17 an hour with benefits may be better than a gig paying $14.57 after taxes.
Improving Your Real Wage
Work at times of high demand, reject low-paying jobs when you can, minimize mileage by clustering, and keep costs down. Track the numbers weekly. Look for gigs with higher pay per hour and lower vehicle costs, such as freelance services that use your skills. Keep good records and claim all legitimate deductions.
Frequently Asked Questions
How do I calculate my true hourly wage from gig work?
Subtract expenses and taxes from gross earnings and divide by total hours, including unpaid time.
What is the self-employment tax rate?
15.3% on 92.35% of net earnings in the United States, up to the Social Security wage base.
How much should I set aside for taxes on side income?
A common range is 25% to 30% of net profit.
Should I use the standard mileage rate?
It simplifies vehicle expense deductions, but compare it with actual costs and follow IRS rules.
Do gig workers get benefits?
Typically not, such as paid leave, health insurance, or retirement contributions.