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365 days, thousands of conversations, and hundreds of car washes. Yes, it’s been a full year of making your own hours and helping others with theirs as a rideshare driver.
Are Uber and Lyft drivers self-employed?
While you might be working with Uber, Lyft, or another rideshare company, you’re not considered an employee but rather an independent contractor. That means that you’re self-employed in the eyes of the IRS.
When the time comes to gather paperwork for your taxes, the biggest thing to know is that you’ll receive a 1099 form and not a W-2 from these companies. Here are the kinds of forms you might receive:
- The requirement for sending out 2023 1099-Ks requires companies to issue a 1099-K to drivers for payments of more than $600.
- You’ll get this from clients who paid you $600 or more to do work for them.
Forms 1099-K and 1099-NEC may not include all of your self-employment income. Still, you must report everything you earned, even if it’s $1, and even cash under the table.
Cash and trade payments
Cash and other income paid to you by check, cash, or even in exchange for other work or items is not reported on either Form 1099-K or 1099-NEC, but you must still report it on your tax return.
If you don’t report this income, or don’t even file your tax return in general, it can lead to major headaches, penalties, and fines.
Understanding self-employment tax
According to the IRS, self-employment is when you’re being paid for the job, rather than your time. You are responsible for your own tools, supplies, and how you do the job. You are still considered self-employed, even if you only do it part-time or in addition to other jobs you might have.
A major difference between an employee and those who are self-employed is how you pay taxes. You can pay taxes in two ways: through withholdings or paying estimated taxes throughout the year.
If you’re a self-employed taxpayer and you expect to owe taxes on your income, you should make quarterly estimated payments. To figure your estimated tax, you must figure your expected adjusted gross income, including your net profit from your self-employment income, taxable income, deductions, income and self-employment taxes, and credits for the year.
There are four due dates for the quarterly estimated payments. If you don’t pay enough tax by the quarterly deadline, you may be charged a penalty, even if you receive a tax refund.
Quarterly estimated tax deadlines
|1st Quarter||Jan. 1 to Mar. 31||Due Apr. 15 (Apr. 18, 2023)|
|2nd Quarter||Apr. 1 to May 31||Due Jun. 15|
|3rd Quarter||June 1 to August 31||Due Sept. 15|
|4th Quarter||Sept.1 to Dec. 31||Due Jan. 15 of the following year (January 16, 2024)|
Note: If these due dates fall on a Saturday, Sunday, or legal holiday, the payments are due the next business day.
All taxes are due the day tax returns are due. This year, that’s April 15, 2024. The due date for Massachusetts and Maine is April 17, 2024 due to Patriot's Day Monday April 15 and Emancipation Day Tuesday April 16.
Who must file taxes?
Most individuals in the U.S. need to file a tax return, if their total income for the year isn’t below the minimum filing requirement, which is generally the standard deduction for their filing status or $400 for self-employed taxpayers. But in order to claim several tax credits, you must file a tax return.
What deductions might I qualify for?
Self-employed taxpayers have some of the most unique and greatest benefits in the tax code. You should talk to your Tax Pro about several tax deductions, including:
- Mileage. Claiming your miles as a deduction is a no-brainer. To do this, keep track of your miles while you’re working, and the total miles put on the car as of December 31 each year. In essence: you can deduct expenses for the miles you drove to your passenger, between passengers, and your drive home. For example, if you drove to someone’s home from the airport, and then back to the airport to pick up a different passenger, you can use these miles to take a deduction. You can do this one of two ways.
- The standard mileage rate - which is 65.5 cents per mile for 2023 (up from 62.5 cents per mile).
- The actual expense method - the business portion of the expenses it took to operate and maintain your vehicle for the year, which includes expenses for gas, oil, repairs, general maintenance, registration, interest payments and depreciation for your vehicle.
No matter which method you choose, you must report both the total miles you drove for ride sharing for the year and for work and the total expenses for the year.
- Your mobile phone. Driving for Uber and Lyft also requires you to use your smart phone, which means you can claim some of these expenses. You can expense the cost of your phone, monthly fees with the carrier, and essential accessories, like chargers and car mounts.
- Special callout: If you use the same mobile phone for your personal use, you can only deduct a portion of your phone expenses for self-employment. Your Tax Pro can help you figure out what you how much you can use as a deduction.
- Refreshments and other items. If you provide your passengers with other goods and services while they’re in your car, you can claim these as deductions. That’s usually things like bottled water, snacks, phone chargers, and other goods.
- Car safety and cleanliness. You can deduct items you use to make sure you operate a safe and clean car. This includes expenses related to first aid kits, roadside assistance plans, tire inflators, pressure gauges, jumper cables, flashlights, and other items.
- Tolls. You can deduct tolls when your routes take you through areas like highways, tunnels, or bridges.
- The Qualified Business Income deduction, or QBI. This is one of the biggest deductions. It allows many self-employed taxpayers to deduct up to 20 percent of their qualified business income before income taxes are determined.
- Part of your Self Employment Tax. You can deduct 50% of the Self Employment Tax you pay.
- Home office. If you have a home office that you use for self-employment purposes, you can also deduct that. But there are rules for this deduction, and there are several misconceptions on who qualifies to take a home office deduction:
- While the home office deduction is only for self-employed taxpayers, it must be an office-in-home that’s an area separated from the living part of the home, and only used for business purposes. It cannot be a room in your home that’s also a guest bedroom, or a space within your kitchen.
You work hard, driving for Uber, Lyft, or other ridesharing company, and it’s rewarding to bring in income. Let us take care of your income tax return. Meet with a Tax Pro today. Find an office near you.