Self-Employment Taxes: The Gig Worker's Surprise
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What students do
- Calculate self-employment tax on net profit using the 15.3% labeled model
- Compare tax owed by a W-2 employee versus a self-employed worker on identical income
- Deduct real business expenses from gross income to find the net profit SE tax applies to
- Split a full-year tax bill into four quarterly estimated payments
What it covers
- Why 1099 income has no withholding, unlike a W-2 paycheck
- How the 15.3% SE tax breaks into a 12.4% Social Security and 2.9% Medicare share
- Why the self-employed pay both the employee and employer halves of payroll tax
- The 25 to 30 percent set-aside rule for taxes on every gig payment
Learning targets
- Explain why self-employed workers owe extra tax that a W-2 employee does not
- Apply the LABELED SE tax model (12.4% Social Security + 2.9% Medicare = 15.3%) to calculate SE tax on gig income
- Explain why gig workers make quarterly estimated tax payments instead of having tax withheld
- Calculate how deducting ordinary and necessary business expenses lowers SE tax owed on NET profit
From one teacher to another
I don't let the surprise stay a surprise here, so instead of a vague warning the lesson opens on Casey's actual numbers, a full year of 1099 pay with nothing withheld, followed by a tax bill that lands exactly double what a W-2 friend owes on identical income. As peer mentor Jordan Reyes, students work that 15.3% split into its Social Security and Medicare pieces and see for themselves why it lands twice as hard. The habit I build the ending around is simple, set aside a quarter of every payment right away, since that's the fix nobody hands gig workers before their first paycheck.
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