Ride Share and Delivery Drivers
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As more people become Uber, Lyft, DoorDash, Dine In Delivery, PostMates, GrubHub or other ride share or delivery drivers, we often hear the question, “How do these services drivers pay taxes?” In this post, we’ll provide a driver tax checklist that lets you know your tax liability, as well as some tax tips and deductions. While this is focused on these services, many of these tips are applicable to many self-employment occupations. Remember these tips are simply that, tips… for Professional Federal and State Income Tax Preparation of these kinds of returns, come and see us at QuikTax™. Our preparers are trained to help drivers!
Ride Share and Delivery driver tax checklist
- Know what taxes you must pay
- The services will file IRS Form 1099-MISC and/or 1099-K with the IRS and your state tax agency if you were paid over $600 during the year
- Be ready to pay estimated quarterly taxes
- Keep track of your miles and expenses
- The mileage deduction can save you major dollars at tax time but only if you have proper records
- Know what deductions you can take
- File the proper tax forms
Are these services self-employment?
Yes. When you drive for these services, you are regarded as an independent contractor, not an employee. This means you’ll receive a 1099-tax form at the end of the year-employees receive a W-2.
Being an independent contractor can have a major impact on your tax bill. It can also have an impact on what deductions you can take to lower your tax liability.
While there are some legal challenges on whether These services drivers should be employees, they will continue to be classified as independent contractors for the foreseeable future.
Do These services drivers get a 1099?
These services drivers are described as self-employed “partners” and fall under 1099 tax rules. For driver services, this falls under 1099-K rules and any other payouts would land under the 1099-MISC rules. These other payouts could include referral fees, bonuses and more. You can procure your needed These services driver tax information by logging into your These services partner portal.
How do These services drivers pay taxes?
Most of these services classify drivers as independent contractors. An independent contractor is a non-employee who is running their own business. These services don’t provide you with any employee benefits like health insurance or vacation. It also doesn’t withhold any taxes from your compensation.
Every year, the services will file IRS Form 1099-MISC and/or 1099-K with the IRS and your state tax agency reporting how much it paid you. This applies if you were paid over $600 during the year.
You need to report this income on your tax return and pay income tax and self-employment tax (Social Security and Medicare tax) on the net profit you earn from your rideshare business. Of course, you can deduct certain business expenses.
Do you have to report Ride Share and Delivery services income?
For most of you, the answer is “yes.” If your net earnings from these services exceed $400, you must report that income. You should file a Form 1040 and attach Schedule C and Schedule SE to report your These services income.
If you’re not required to file an income tax return and your net earnings from these services are less than $400, you aren’t required to report your These services income.
I’m a Ride Share or Delivery Services Driver. What taxes do I pay?
Let’s say you are a sole proprietor. It’s how most self-employed people, including Ride Share and Delivery drivers, operate their businesses.
When you’re a sole proprietor, you and your business are one and the same for tax purposes. You don’t pay taxes or file tax returns separately for your sole proprietorship. Instead, you report the income you earn on your own personal tax return, IRS Form 1040.
To show whether you have a profit or loss from your sole proprietorship, you file IRS Schedule C, Profit or Loss From Business, with your return. On this form, you list all your business income and deductible expenses. You only pay tax on the profit you have left after you subtract all your expenses from your business income.
When you’re a sole proprietor, you must pay self-employment taxes on your net income. You must also pay your income taxes.
Maximize your tax deductions
Log miles and calculate the value of your drives with free mileage tracking templates.
Self-employment taxes are the Social Security and Medicare taxes sole proprietors pay. When you’re an independent contractor, you must pay all your Social Security and Medicare taxes out of your own pocket.
These services won’t pay half of them for you (employers must pay half of these taxes for their employees, but not for contractors). These taxes are substantial: The Social Security tax rate is 12.4 percent and your Medicare tax is 2.9 percent on the first $128,400 of your covered wages but you are able to deduct the employer portion. You file IRS Form SE with your tax return to report and pay these taxes.
Tax deductions for Ride Share or Delivery Services Driver
It’s very important for you to keep track of all the deductible expenses you incur throughout the year since they will decrease the amount of profit, you’ll have to pay tax on.
Since your business is driving, your biggest deduction will be your car expenses. You can deduct these expenses one of two ways: you can use the standard mileage rate and take a mileage deduction. Alternatively, you can deduct your actual expenses like gas, repairs, depreciation, lease expenses if you lease your car, etc.
The standard mileage rate is the most popular because it requires less record keeping. Whatever method you use, it is vital that you keep track of your business mileage. You can use a mileage tracking app like MileIQ or an old-fashioned paper mileage log, which requires quite a bit of manual work.
Ride Share or Delivery Services Drivers deduct 20% of their income?
Yes, most These services drivers should be able to use the Section 199A deduction to deduct up to 20% of their business income. This is a section that leads to a lot of confusion, if you are uncertain of the details, please see a professional tax preparer – like QuikTax.
Can I write off my car if I drive for a Ride Share or Delivery Company?
You can deduct car expenses like the standard mileage rate or the actual expenses. It’s very tough to write off something like a full car payment or lease, though. That’s because the IRS will (rightly) question if it’s being 100 percent used for business.
Ride Share or Delivery services driver tax checklist: A list of deductions not to miss
Other deductions for an These services driver would typically include:
- The cost of your iPhone or other cell phones (the percentage of your phone that you use for business is deductible, rarely is it 100%)
- Water, candies, gum and other items you provide your passengers
- Any extra insurance coverage you obtain for your business
- Fees and commissions the services charge you (however, don’t deduct any fees these services takes directly from your pay and doesn’t include in the compensation listed on your 1099 form)
- Home office deduction: You can qualify for this valuable deduction if you use a portion of your home exclusively for record keeping and other administrative tasks for your ridesharing business. This is VERY TRICKY and requires a professional tax preparer to get your home office deduction ACCURATE.
- Parking and tolls
- Interest on a car loan, if you use the car for personal and business use, the business use percentage is deductible on Schedule C
- PayPal, Square, Stripe or other credit card transaction fees you pay
You need to keep track of all of these and any other expenses you incur for your ride-sharing business. There are many accounting and tax preparation apps and software you can use to keep track of your expenses.
Do Ride Share and Delivery services drivers need to pay estimated taxes?
Self-employed people are not allowed to wait until April 15 to pay all the income and self-employment (Social Security and Medicare) taxes they owe for the prior year. Instead, they are required to prepay their taxes by making estimated tax payments to the IRS four times per year.
You must pay estimated taxes if you expect to owe at least $1,000 in federal tax for the year from your ride-sharing business. You’ll probably need to earn a profit of at least $5,000 or $6,000 from your business to owe this much tax.
The IRS imposes modest interest penalties if you don’t pay enough estimated tax.