How do rideshare (Uber and Lyft) drivers pay taxes?

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:

• 1099-K
  • Companies must issue a 1099-K to drivers for annual gross earnings for rides of more than $600.
• 1099-NEC
  • You’ll get this from clients who paid you $600 or more to do work for them. Drivers will get a 1099-NEC from the ride share company if they earned at least $600 from non-rider user payments, like referrals or promotions.

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 estimate 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

Note: If these due dates fall on a Saturday, Sunday, or legal holiday, the payments are due the next business day.

All tax amounts  are due the day annual tax returns are due. Typically, that’s April 15. The due date for Massachusetts and Maine may vary due to Patriot’s Day and Emancipation Day holidays.

Who must file taxes?

Most individuals need to file a tax return  if their total income reaches the annual minimum filing requirement, which is generally the standard deduction amount for their filing status.  However, the minimum amount requiring filing a tax return is just $400 for self-employed taxpayers. But to claim several worthwhile 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 set annually.
  • 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 a 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 for a ‘business only’ phone.
  • 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 determine what and 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 QBID. 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 Business Use of Home deduction is only for self-employed taxpayers, it must be an area separated from the living functions 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.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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