So let’s be real – filing taxes while working in the gig economy is a real pain in the tuckus. It’s daunting for anyone who’s never taken the stage, being obligatory and essential and all. That’s why we spend so much time at Moves curating resources that clarify the process of tax filing for gig workers. Here’s another one of those ventures.
We’ve partnered up with April’s head of tax strategy, CPA Jody Padar, for a step-by-step professional breakdown on how to file taxes as a rideshare driver. Jody was voted as one of the top 100 Most Influential Individuals by Accounting Today, has accumulated thousands of LinkedIn followers, and is the author of several successful books, including The Radical CPA. She’s got over 25 years in the game and knows her home turf.
Herein, we’ll answer all the big questions concerning rideshare tax filing and walk you through the process from start to finish! There are some pro tips in the mix too. Oh, and this is a multi-part blog, so check out part 2 after you finish here for more tax solutions!
What is the difference between self-employment tax and income tax?
Firstly, let’s get our terms straight. Self-employment tax, or SECA, is a tax paid by self-employed businesses (ie you as a sole proprietor) to the Social Security Administration. Income tax is, for lack of a better term, the regular tax paid on earned income. Usually, as a W2 worker, your employer would pay half of your social security tax for you – this includes both social security and medicare. The other half is what gets taken out of your paycheck (usually).
Remember, however, that as a self-employed worker you’re classified as both an employer and an employee. Therefore, you now have to pay both the full percentage amount for SECA tax, as well as FICA tax and income tax on earnings. All self-employed businesses must pay both taxes!
Keeping that in mind, the full SECA tax rate at this time is 15.3%. Be mindful each time you receive payment for work that nothing has been removed for tax allocation and all financial management fall on the employer (you). We recommend forming the habit of setting aside your own taxes each time you get paid to save yourself a headache once comes tax filing season.
Do you have to pay taxes as a Lyft driver? Do Uber drivers pay taxes?
We get this a lot. The answer is yes, rideshare tax filing is a real thing. While things were different in the past, both Uber and Lyft now consider their employees as independent contractors. An independent contractor is deemed as the sole proprietor of their own business and must file taxes as a self-employed business.
“Self-employment taxes are FICA and Medicare taxes. If you’re a W2 employee, your employer pays half of it, and you pay half of it. But because you’re self-employed, you’re essentially the employee and the employer. So you have to pay both sides of the tax…”
What is the minimum you need to make from self-employment to be taxed?
As a self-employed worker, you need to earn at least $400 to be required to file self-employment taxes. That’s right, just $400. That is not to be confused with the bracket for filing income tax. As of now, single status workers under 65 must gross at least $12,550 to be required to file income tax. BUT, that goes only for W2 workers. Self-employed workers must file income tax regardless!
How much money should you save for taxes if you’re doing gig work as a full-time job versus as a side hustle?
Technically, your income should be saved for taxes based on tax percentages and minimum expected earnings rather than anything else. If you aren’t on a W2, which is what most regularly-employed folks must file at the end of the year, then you’re filing as a self-employed business. All of the rules are the same.
How many times a year do gig workers have to pay taxes?
According to Jody, the IRS wants tax payments quarterly: on the 15th of April, June, October, and January. If you don’t pay them quarterly, you’re subject to pay a penalty. And it’s just like working as a regular employee; the IRS expects to receive money during the year, incrementally.
“If you were a regular employee, they’re taking money out of your check every week. So you have to think about it the same way, right?”
It’s a default failsafe to the age-old problem of promising yourself you’ll save until April to pay everything only to realize life got in the way you’re actually not prepared to cough up what’s owed. That can lead to stressful IRS payment plans or seeking loans for self-employed workers.
That being said, gig workers who are also employed as W2 workers can utilize their W2 income tax withholdings to soften the blow of self-employed penalties. Since there are at least some withholdings, the penalties are likely to be less. One trick you do if you’re in this situation is to request a greater amount of withholdings be removed from your regular paychecks in order to cover your self-employment income. This way, you won’t have to make any estimates.
How much money should you save each quarter as a gig worker?
Jody recommends saving around 30% of your income for the sake of taxes. Around 17% gets allotted to self-employment tax, and about 15% goes for income taxes. Most Uber and Lyft driver taxes will fall within the lower income tax bracket. If for some reason you have an excellent year and earn a lot more, you can put more aside for income taxes.
Also be sure to check the state tax rates for your state, as many states have additional tax payments that need to be paid, and the rate varies depending on the state you live in.
What if you are working on multiple gig platforms? Are your taxes different for each gig platform?
When you work multiple gigs, you can combine your income and present it in one form given that the nature of the jobs is very similar. So when thinking about how to file taxes as a rideshare driver consider the affinities between the jobs. For example, if you’re a Doordash runner and a Lyft driver filing taxes, the process is more or less the same. Other types of gigs will require a separate form corresponding to the category of work it falls under. So while it gets separately stated on your Schedule C, you pay the same amount of tax on income.
Aside from organization, this will help a bunch once you start to consider 1099 write-offs for each particular gig.
In general, do gig workers need to report cash advances or other types of loans on their annual reporting?
Gig workers are required to report income as it is earned on their taxes. Make sure you don’t double count a loan (cash advance) and the income earned twice. But, for example, If there is a service fee that comes with a zero-interest loan, said fee can be considered as an expense to be written off when it comes time to file. The goal is always to realize how much income you’ve earned – all of it is liable to be taxed – minus any expenses which were required to obtain such income. Employees of things like Uber and Lyft can use a rideshare tax calculator to better organize payments versus expenses.
If you found this helpful, make sure to be on the lookout for part two of our tax guide, which will walk you through the ins and outs of paying for taxes, and preparing to pay taxes!