Uber tax tips (also Lyft and other ridesharing drivers)

Posted 7 years ago in Small Business TipsTaxes
by Tim Chaves

If you’re a driver for Uber, Lyft, or some other ridesharing service, you may not be aware that you’re considered an independent contractor, or in other words, self-employed. Lawsuits are pending in some states that contend that you should be treated like an employee but until that is all sorted out, for tax purposes, you’ll need to know how to handle income from your ridesharing business as an independent contractor.

You pay more taxes when you are self-employed

There are a lot of differences between being employed by a company and being self-employed. The first major difference between being an employer and an employee is that the latter only pays half of the total payroll tax liability, which includes Social Security (6.2%) and Medicare (1.45%). When you’re an employer and you pay yourself, you have to pay the full payroll tax liability. That’s a Social Security tax rate of 12.4% and a Medicare tax rate of 2.9%.

Your taxes aren’t withheld for you

Another big difference is that when you are self-employed, no one withholds taxes from your income for you. You’ll receive the entire gross payment from your clients.

It’s important to know this because you’ll have to pay all your income taxes from the money you get paid, so don’t spend money from your Uber or Lyft work like you would from a normal paycheck. If this is your first year running your own ridesharing business, the IRS is going to be more forgiving about when you pay those taxes, but the generally accepted method is to make an estimated tax payment every quarter as you go.

If you’ve been running your ridesharing business for more than a year, you need to make sure that your total quarterly tax payments equal at least ninety percent (90%) of last year’s tax liability, or you could face a tax penalty. On the other hand, if you’ve been an Uber driver for more than a year, you probably already know your way around self-employment taxes.

For further information about how to file quarterly tax payments, please check out our article: Estimated Quarterly Taxes: How to Calculate and File

Reporting your income to the IRS

The ridesharing company that hired you as a vendor will provide up to two different forms at the end of the year depending on who you worked with and how you were paid.

1099-K income

The 1099-K is an informational return that shows the total number of payments you processed during the year. Although a 1099-K is not normally issued for a business that is conducting less than $20,000 in transactions in a year, Uber sends a 1099-K to any driver who makes at least one trip. Lyft sends them only to drivers who make at least 200 trips and generate at least $20,000 in fares per year.

The 1099-K will report the total of all payments that you received, but it should also show the amount that was deducted for your Uber commissions and fees. It may also break out any sales tax that Uber applied to your fares, thus giving you a number that is what you actually received as net income.

1099-MISC income

Normally you would receive a 1099-MISC for independent contractor income, but Uber only sends a 1099-MISC if you received income directly from the company, such as a referral fee or bonus.

Your tax information from Uber should also include the total number of miles that you drove for them. This is a very important number so make sure it matches up to any figure that you may have calculated yourself as part of your own record-keeping.

For more information about forms 1099-K and 1099-MISC, please see our article: 1099-K vs 1099-MISC—What’s the Difference?

How do I report income on my tax return?

When you are self-employed, you have to report your income on a Schedule C, or Profit or Loss from a Business. If you have self-employment income from more than one source, you’ll combine it together and put it on Part One: Profit, Line 1: Gross Receipts or Sales. Make sure to include a copy of your 1099s when you file your tax return.

For more information about filing the Schedule C, please read our article: How to Fill Out a Schedule C Tax Form.

Using the Schedule SE to calculate tax liability

The Schedule SE is required in addition to Schedule C. You use it to calculate the amount of payroll tax you owe. You can find out more about it in our article: How to Reduce your Self-Employment Tax

How to reduce your self-employment tax liability

The way to pay the least amount of taxes is to claim all the allowable deductible business expenses that you incurred while running your business. When you are an Uber driver, you can deduct things directly related to your ownership of your vehicle for driving services, such as:

  • Gas
  • Car Insurance
  • Car Maintenance
  • Car Registration
  • Car payment

This deduction can be figured in one of two ways:

  1. you can keep track of all the actual expenses, and then deduct the portion based on how much of your driving is personal versus business;
  2. or, you can deduct a flat amount per mile based on the accepted mileage deduction approved by the IRS, which is currently 53.5 cents per mile for the 2017 tax year. This is lower than the 54 cents allowed for the 2016 tax year because of the falling cost of fuel.

Other expenses that can be deducted include:

  • Tolls and parking
  • Costs of your phone and phone plan (the percent related to using the phone for your business versus using the phone for personal needs)
  • Costs for accounting and tax products/services
  • Things you offer free to your riders, like gum or candy

You’ll total these expenses up under section 2 of Schedule C. So the more deductions you can take, the lower will be your net income, and the less taxes you will have to pay.

About Tim

Tim is Founder and CEO of ZipBooks. He keeps his desk really nice and neat.

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