The Complete Guide to Rideshare Driver Taxes (Uber & Lyft)
Navigating taxes as a rideshare driver can be complex. That’s because rideshare drivers, operating as independent contractors for companies like Uber and Lyft, face unique tax responsibilities that don't apply to regular employees. That’s why we came up with this comprehensive guide to understanding and managing taxes as a rideshare driver, covering everything from self-employment taxes to maximizing deductions and adhering to important deadlines.
Types of Taxes for Rideshare Drivers
Rideshare drivers operate as independent contractors, which means they manage their own business finances, including taxes. The primary taxes that impact rideshare drivers are self-employment taxes, federal income taxes, and state income taxes. Unlike traditional employees, these drivers must independently track and pay these taxes directly to the IRS and their state's Department of Revenue.
Self-Employment Taxes
Self-employment taxes consist primarily of Social Security and Medicare taxes that total 15.3% of a rideshare driver's income. This percentage is split into 12.4% for Social Security and 2.9% for Medicare. There's one big difference between self-employment tax and the payroll taxes people who work for an employer pay. Typically, employees and their employers split the Social Security tax and Medicare tax (i.e., you pay 7.65% and your employer pays 7.65%); while self-employed people pay all of it.
Rideshare drivers are required to pay self-employment taxes if their net earnings exceed $400. Drivers should fill out a Schedule SE, to accompany their personal tax return if they have earned this threshold amount in annual earnings from rideshare work. It is paramount to know that self-employment tax is not the entirety of the tax obligation but is rather an additional tax on top of regular income taxes.
Federal Income Taxes
Federal income taxes are determined by applying the appropriate tax rates to the rideshare driver's taxable income—which includes all self-employment income after deductions and exemptions. Since rideshare drivers are independent contractors, they need to set aside funds for federal and possibly state and local income taxes.
A strategic practice for drivers is to set aside approximately 25% of their net income to ensure they have enough money saved to cover the amount of tax owed. This covers both federal income and self-employment taxes.
Click here to view the federal income tax rates and brackets
State and Local Income Taxes
State and local income taxes are another financial responsibility rideshare drivers must manage. Tax rates vary dramatically across the U.S., with some states having higher rates and other states forgoing income tax altogether.
Rideshare drivers need to understand and adhere to the tax requirements of their state of residence. Unlike federal income taxes, which have uniform rates across the country, state taxes are not standardized.
Drivers should consult with a tax professional or use reliable tax software to ensure they remain compliant with both federal and state tax codes. Tax advice is always beneficial, especially for drivers new to the rideshare business, to navigate the complexities of various tax deductions, income thresholds, and payment schedules.
Deductible Expenses for Rideshare Drivers
Navigating the world of taxes as a rideshare driver can be overwhelming, but taking advantage of deductible business expenses can significantly reduce your taxable income. When it comes to common deductible expenses, keep in mind that almost any ordinary and necessary cost for the operation of your rideshare business can potentially save you money come tax time.
Rideshare companies will report to the IRS the gross (total) income or revenue paid to you. The IRS will expect you to pay taxes on that amount, unless you track and document expenses you're allowed to deduct and are considered reasonable for operating your business.
For rideshare drivers looking to maximize deductions and minimize taxes, understanding what is deductible and maintaining good documentation are the keys to success. Staying vigilant about tracking these expenses is fundamental for streamlining the tax filing process and substantiating your claims on a tax return.
Expenses, Fees and Taxes
Your rideshare company will likely report a gross revenue amount for the total ride, then deduct amounts they charge to provide their service to you. These deductions are often detailed under expenses, fees, and taxes. These deductions can all be deducted from your Gross Pay as expenses to get to your Net Payout.
Vehicle Expenses
For rideshare drivers, vehicle expenses often represent the largest share of deductible business costs. You have two options for claiming vehicle expense deductions: tracking actual vehicle expenses or using the standard mileage rate provided by the IRS.
The actual expenses method includes all costs associated with operating your vehicle for business purposes, such as gas, maintenance, repairs, vehicle insurance, and loan payments (taken as depreciation and interest) or lease payments. You must keep detailed records and receipts for all these expenses to claim them on your tax return. This method can be complicated but advantageous if the actual expenses outweigh the amount you'd claim using the standard mileage rate.
On the other hand, the standard mileage rate simplifies record-keeping. In 2024, the IRS has set this rate at 67 cents per mile for every business mile driven. This rate is designed to account for the costs mentioned above without the need for detailed logs. However, you must still document the dates of business trips, mileage, and purpose of the travel to use this method.
Deduction Method | Requirements | Notes |
Standard Mileage | Tracking total business miles driven | Cannot claim actual car expenses |
Actual Expenses |
| To arrive at your deductible expense, multiply your total expenses by your percentage used for business miles |
Other Business Expenses
Outside of vehicle expenses, there are still numerous opportunities to lower your taxable income through other business deductions. A variety of business-related expenses are deductible, such as parking fees, tolls, and supplies provided to passengers, like water bottles and candies or snacks. Items needed for your day-to-day operations, such as a quality mobile phone plan, can also be deductible Don't forget, if you've opted for a roadside assistance plan for those just-in-case scenarios, this too can be deductible.
However, not every expense can be written off. Clothes, meals, and entertainment are not considered ordinary and necessary business expenses and must be handled separately. Similarly, while health insurance is a crucial expense, it may not fall under business expenses for tax purposes, unless it is a plan specifically for your business.
In keeping with IRS requirements, maintaining comprehensive logs and receipts for both vehicle-related and other business expenses is paramount for successful deductions. It's recommended to use a mileage tracking app or a well-organized spreadsheet to make sure nothing slips through the cracks and to ease the burden during tax season.
Summary of Common Deductions
Standard mileage deduction (currently 67 cents per mile in 2024)
Vehicle Expenses (If you aren’t using the standard mileage deduction)
Platform Fees
Phone & Internet (When used for your business)
Supplies Provided to Passengers
Washing & Cleaning
Parking
Tolls
Subscriptions
Satellite Radio
ATBS Services
Record-Keeping Tips for Rideshare Drivers
Detailed records serve as an irreplaceable component of the tax return filing process for rideshare drivers. When you keep a precise tally of income and costs, you're better prepared to capture all eligible tax deductions, including the smaller, often-forgotten expenditures such as car washes and phone bills.
This diligent tracking isn't just for the IRS; it enables you to understand and grow your business by giving you an accurate measure of your expenses and net earnings.
Key to effective record-keeping for rideshare drivers is the use of reliable tools and systems to organize data throughout the year. This includes a dedicated space or digital solution for storing receipts, an accurate and up-to-date log for tracking business miles versus personal miles, and a comprehensive overview of all business-related expenses.
Mileage Tracking
For rideshare drivers, mileage tracking is not a mere suggestion—it's a necessity. By distinguishing between business and personal miles, you're able to capitalize on the generous mileage deduction offered by the IRS. Business miles include the distance traveled while conducting business for tasks such as driving to pick up passengers, moving with passengers on board, and completing delivery drop-offs. This may include excess business miles between paying trips, and driving to places related to your business (picking up supplies, driving to a car wash or shop for maintenance).
Many rideshare drivers work directly with customers outside of the rideshare apps. Because these rides aren’t tracked in any app, it’s important you keep track of the miles yourself in order to maximize your tax deduction. The ATBS Hub makes tracking these off-the-books miles easy.
To ensure compliance and ease during tax time, employ a dedicated mileage tracker app or a simple, well-maintained mileage log. The former typically automates the process, distinguishing between personal and business mileage and providing easily generated reports. Remember, accurate mileage tracking aids in claiming either the IRS standard mileage rate or actual vehicle expenses.
Many rideshare apps provide mileage tracking on their statements while operating under that app. The challenge is if you work for more than one rideshare company, you will likely not have accurate mileage tracking. Additionally, the mileage tracked by rideshare apps can be off by 10% or more, costing you valuable deductible miles.
Keeping Receipts and Documentation
Keeping detailed receipts and proper documentation is like guarding the keys to your financial kingdom. Embrace technological solutions like apps or cloud-based software to categorize and store your receipts digitally, ensuring a lasting, accessible record should the IRS request evidence of expenses. Alongside the digitized proof, maintain a physical copy when possible for added security against potential data loss. The ATBS Hub allows you to capture your receipts and documents instantly and will serve as your digital storage box allowing you to store your documents forever.
Couple your mileage logs with receipts for every deductible expense. This includes keeping tabs on your car insurance, oil changes, and any repairs. For the IRS, the correlation between your receipts and mileage log illustrates the integrity of your claims. Don't tempt fate by attempting to double-deduct; it's vital to steer clear of claiming both mileage and actual car expenses. Lastly, keep your tax documents, such as 1099-K and 1099-NEC forms, orderly and readily available for a streamlined and accurate reporting experience.
By following these record-keeping tips, you, as a rideshare driver, can navigate the complexities of self-employment taxes with confidence, ensuring that you maximize your deductions and minimize any potential audits or penalties.
Tax Filing Process for Rideshare Drivers
Navigating the tax season comes with a unique set of challenges for rideshare drivers, who operate as self-employed independent contractors. Rather than having taxes withheld from a paycheck like traditional employees, rideshare operators must be proactive about setting aside a portion of their earnings to meet these obligations. While this offers flexibility in managing finances, it requires a comprehensive understanding of what is owed and when—prompting many drivers to turn to reliable tax filing software or professional financial advisors to ensure accuracy and compliance.
Reporting Earnings from Rideshare Services (Form 1099-MISC, 1099-K)
Rideshare drivers primarily receive earnings documentation via Form 1099-MISC and Form 1099-K, ensuring a record of their income is reported to both them and the IRS. These forms from Uber, Lyft, and other similar platforms detail the income earned, including passenger charges, fees, and tolls, which not only reflect earnings but also provide information on deductible business expenses.
For reporting purposes of sole proprietors, rideshare drivers will utilize IRS Schedule C to report their business profits, which is used alongside Schedule SE (for self-employment tax), should their net profit exceed $400. It is critical for drivers to include their annual earnings as well as expenses on Schedule C to calculate the profit or loss from their rideshare business operations. Even for drivers who pay quarterly estimated taxes, filing an official tax return by the April 15 deadline, or the extension deadline of October 15, is mandatory.
The process requires organization and readiness, with key tax documents including 1099-K, and 1099-NEC forms, detailed receipts, mileage logs, and proof of any estimated taxes paid to be kept on hand. Furthermore, access to essential personal information, such as Social Security numbers, is imperative for filing.
Understanding when you will receive a 1099-K form is important for rideshare drivers, as this tax document is tied to certain earning thresholds and will guide your reporting. For 2024, the IRS mandates that a 1099-K is issued to those who have made over $5,000 in customer payments and provided at least 200 rides or deliveries in the past year. However, some states set this threshold lower, meaning you might receive a 1099-K even if you haven't hit the $5,000 mark. This includes being paid for rides directly with the client without going through a ride-share platform.
Key points regarding 1099-K and tax reporting include:
Receiving a 1099-K will depend on your annual earnings and the number of transactions you've completed, with some states imposing lower thresholds.
In addition to 1099-K forms, you may receive a Form 1099-NEC if you've earned $600 or more through promotions, referrals, or other miscellaneous payments.
As a rideshare driver, staying informed of these reporting thresholds is crucial. Make sure to be aware of the specific 1099-K rules in your state as they could differ from federal requirements, thereby impacting the documentation you receive and need to report.
How to file gig driver taxes without a 1099?
All income generated as a ride-share driver is reportable to the IRS. If you don’t receive a 1099 you should manually add the revenue earned to your Schedule C.
You will need your yearly summary from your rideshare company and any personal records you have of revenue and deductible expenses that may have occurred off the books outside of a rideshare app. Your best bet is to report all your revenue and expenses because the IRS will find out about it.
Filing Schedule C for Business Income and Expenses
Schedule C is the tax form used by rideshare drivers to report the income and expenses related to their business. On this form, earnings reported on 1099 forms are entered, and the business expenses are meticulously listed to calculate the net profit or loss from their rideshare driving.
The tax summary provided by platforms like Uber delineates between incomes reported under 1099-K (for payment transactions) and 1099-NEC (for non-employee compensation) facilitating the correct reporting on Schedule C.
Filing a Schedule C is essential as it not only determines taxable business income for income taxes but also lays the groundwork for self-employment tax calculations on Schedule SE.
If fully utilized, the ATBS Hub will create a Schedule C by combining your miles and the documents you sent, thus simplifying your tax filing process.
Calculating Self-Employment Taxes (Schedule SE)
Self-employment taxes, which encompass Social Security and Medicare, are a significant tax consideration for rideshare drivers. To compute these, drivers must fill out Schedule SE, which calculates the tax based on net earnings from self-employment. This form ensures that those who work independently are contributing to their Social Security and Medicare similar to traditional employees.
Crucially, rideshare drivers can deduct half of the self-employment tax they owe as an adjustment to income on their tax return. This deduction mitigates the overall tax impact and lowers their taxable income. To assist with these calculations, which can often become complex, tax preparation software, or the expertise of a tax professional, can be very helpful and valuable.
Quarterly Estimated Tax Payments for Self-Employment Taxes
For rideshare drivers who have transitioned to being their own business owners, understanding the process of quarterly estimated tax payments is imperative. This system is designed to allow self-employed individuals, including rideshare drivers, to pay portions of their expected annual income taxes throughout the year.
These are the key facts you need to know:
Self-employed individuals with an income over $75,000—or $150,000 for those filing jointly—are expected to pay 110% of the previous year's taxes.
Quarterly estimated tax payments have specific due dates throughout the year, generally falling in the middle of April, June, September, and the following January.
You are required to make estimated tax payments if you anticipate owing more than $1,000 in taxes for the year.
Payments can be made either by mail or online through the Electronic Federal Tax Payment System.
For those who are new to self-employment, such as rideshare drivers, estimating annual earnings from weekly earnings can aid in determining how much should be sent in quarterly estimated tax payments. Proactive tax payments can help avoid underpayment penalties and ensure smooth financial planning.
Wrapping up
Rideshare drivers have unique tax obligations that need to be understood and managed effectively. Making quarterly estimated tax payments and staying informed about the reporting thresholds for forms like 1099-K and 1099-NEC are crucial steps in fulfilling these obligations.
By proactively addressing their accounting and tax responsibilities, rideshare drivers can avoid penalties, ensure accurate reporting, and maintain financial stability. It is important to consult with a tax professional or use reputable tax software to navigate these complexities and maximize tax deductions. With the right knowledge and preparation, rideshare drivers can confidently handle their tax obligations.
The ATBS Hub was designed to eliminate the headache of numbers and paperwork, allowing you to focus on your gig instead of bookkeeping. Want to learn more? Click here to simplify your life.