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Food delivery is here to stay. And you may be one of the many Americans working for these food delivery services, like DoorDash, Uber Eats, and Grubhub. If you are already doing this, or thinking of joining to make some spare cash, you may have questions about what you may have to pay in taxes at the end of the year. Continue reading to find out about tax rates, deducting business-related miles, and more.
As more and more people work in this part of the “gig economy,” you may have questions about whether you’re an employee or a contractor. We’ll dive into the broad strokes of what it means to fit into these different categories, but you can always discuss with a Tax Pro the details of your employment. We’ll also cover deductions related to your car, gas, and other important write-offs.
Employee status vs. contractor status
- Employees generally receive regular paychecks with income, Social Security, and Medicare taxes withheld from their wages. At year-end, they typically receive a Form W-2 with information on the income earned for the year and total tax withheld.
- Independent contractors are typically considered self-employed. The companies that hire them don't withhold income or payroll taxes from their payments. You should receive Form 1099-NEC from whatever food delivery company you’re working for.
As a self-employed person, you will also need to include Schedule 1 and Schedule C with your tax return. These are the required forms when you are self-employed. You may need other forms, such as Schedule 2, Schedule SE, Form 4562, and others.
Whether you are due to receive a Form W-2, Form 1099, or both, you should receive your tax forms with your total earnings for the year by January 31. If you haven’t received them by the end of January, reach out to the company or companies for whom you’ve been delivering food to see if you can download it online, or if they can send the documents to you as soon as possible.
It’s important to note that even if you haven’t received the forms, you are still obligated to report any income earned throughout the year. Keep a record of all your earnings and make sure to compare what you receive and what you made.
If you’re not sure which documents do or do not apply to you, Jackson Hewitt’s Tax Pros can help you with how to proceed.
Deductions for delivery drivers
According to the IRS, deductible business expenses for taxes must be both necessary and ordinary. That means the expense must be:
- Common and accepted in your business or trade
- Necessary for your business or trade
Deductible business expenses may include the cost of goods sold, capital expenses, and other expenses. Keep the following potential business expenses for taxes in mind and save your receipts and records throughout the year to maximize your self-employment deductions.
Deducting miles for delivery drivers
If you use your vehicle for food delivery work, you can deduct maintenance and repairs for vehicle upkeep and expense. This may include expenses such as car payments, gas costs, oil changes, registration fees, insurance, parking fees, tolls, and depreciation (if you own the car or truck), new tires, or leasing costs.
You may choose the actual expense method or use the standard mileage rate. If you choose the actual expense method, you must also keep track of your vehicle-related expenses for the year. Vehicle-related expenses include gas, oil, insurance, repairs, cleaning, and registration.
Whichever method you choose, you must keep track of the mileage on your car from the first day of the year, or the first day you start using your car for business, through the end of the year. Keeping a log of your miles in a planner, on a calendar or even in a spreadsheet will help to support your claim.
Meals and snacks deductions
Most of the time, you won’t be able to deduct your meals and snacks on the go. You can deduct the cost of snacks and drinks, and the ice to keep them cold, you keep for your customers. You may also be able to deduct a meal with another delivery driver if the two of you are talking about the job and giving each other tips on the work, and so on. Always check with your Tax Pro about anything you would want to claim and make sure that you’re accounting for things properly.
Deducting equipment and supplies expenses
You may also need to think of different supplies you’ll need to run your business and keep track of everything. Most businesses have two types of supplies. There are office supplies such as pens, pencils, notepads, calendars, etc. and work supplies that are specific to a job.
Keep track of your expenses for each job and for your office supplies. This will help you lower your income and self-employment taxes when it comes time to do your tax return.
Deducting health insurance premiums
If you are self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents.
- This health insurance write-off is entered on Part II of Schedule 1 as an adjustment to income.
- Unlike an itemized deduction, this deduction treatment is beneficial because it lowers your adjusted gross income (AGI).
- Having lower AGI can reduce the odds that you’ll be affected by unfavorable phase-out rules that can cut back or eliminate various tax breaks.
Eligibility is determined month-by-month. You can only claim the health insurance premiums write-off for months when you, or your spouse, were eligible to participate in an employer-sponsored program.
Unreimbursed medical expense deductions for delivery drivers
If itemizing deductions, the IRS allows taxpayers to deduct the qualified unreimbursed medical care expenses that exceeds 7.5% of their adjusted gross income.
If you have an AGI of $50,000 and $10,000 in total deductible medical expenses, 7.5% of $50,000 is $3,750. You can deduct $6,250 of medical expenses as part of your itemized deductions.
The total itemized deductions need to exceed the standard deduction for the taxpayer’s filing status. For example, a married filing jointly taxpayer needs to exceed $30,700 in itemized deductions for the medical expenses to be truly deductible.
There are many more possible deductions to explore. If you’re working in America’s rapidly expanding gig economy as a delivery driver, knowing the tax deductions you might qualify for can help you prepare for tax season and encourage you to keep track of your job-related spending throughout the year.
Stay informed and stay on top of your taxes by finding an office near you. Our Tax Pros are happy to answer any questions you may have on self-employment tax deductions.
About the Author
Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.