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!
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.
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…”
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!
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.
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.
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.
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.
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!
For the second installation on how to file taxes as a rideshare driver, we focus more on logistics and the specific forms necessary for rideshare tax filing. Let’s get right to it.
First and foremost, a standard 1040 tax form will be used by all self-employed citizens to file taxes. Again, self-employed workers are not exempt from filing normal income tax to be reported to the IRS. All U.S. taxpaying citizens can file a 1040 Individual Taxpayer’s Form every fiscal year!
Next in line is Form 1099-MISC. This form should be given to anyone (person who works for you) whom you pay a minimum of $600 for specific services. There are other 1099 forms like 1099-K and 1099-NEC which have more specific functions but they aren’t necessary for most people.
Lastly, we have Schedule C, used for reporting profits and losses within your business. There are also Schedule 1 and Schedule SE which work together to add more details to the 1040.
“… and you’re going to file as a self-employed worker, meaning you’re going to file a Schedule C on your individual form 1040.”
The 1040 is what gets filed – all other forms either support the information within or attach to the 1040. For more ins and outs on these forms and how they work together to create your tax report, check out our article on filing taxes (1099).
Maximizing deductions is part of how to file taxes as a rideshare driver – so let’s talk about deductions themselves. Tax deductions can be any expenses paid in order to help you attend to your job. These deductions are considered 1099 write offs since that’s where they’ll be recorded. Luckily for gig workers, there are a plethora of potential tax writeoffs to be taken advantage of.
We interviewed a gig worker who is hip to Moves for the low down on her thoughts and processes around managing her finances for taxes. She does everything from ridesharing to shopping and has some experience in the field. For Lyft and Uber driver tax deductions, everything related to car maintenance can be removed: gas, car washes, car insurance, detail… everything! Plus, by-expenses like tolls and parking tickets can be called Uber and Lyft driver tax write-offs.
“You can actually take the interest off your credit card for tax deductions. Because you’re building credit towards your business with the interest rate that you’re using for your gas credit card”
Your cell phone bill + insurance can be added to that list. Oh, and charity is a great way to maximize freelancer tax deductions.
“[I make] Charitable donations, so $300 a year. So you can go in and donate old furniture and stuff and get $300 on that”
So there you have it. Obviously, keeping up with all the configurations can be a handful, so organization is key. Try separating your business from your personal transactions with a dedicated spending account.
For one, a rideshare tax calculator is a great way to estimate your taxes based on your weekly work hours and frequency. You can also grab a tax summary from your contracting company, which contains all the important details concerning your work year. Plenty of employers send this out at the end of the year, but sometimes you’ve gotta ask.
Our friendly interviewee reported using Keeper Tax for standard tracking and QuickBooks to keep up with deductibles. Expenses were tracked on an entirely separate spreadsheet, so manual input is always an option too, given you have the time.
There are also a ton of apps that show you how to track mileage for taxes as a rideshare worker. All you have to do is keep your phone on with GPS connected during your rides and the calculations go into the app. MileIQ was recommended personally to us by this gig worker, but the options are plentiful.
Lastly, there’s always the option of getting help from a CPA, be it a real human being or tax filing software like TurboTax. A mix of applications, software, and tools will likely serve you best overall – narrow down your toolbox over time as you develop a personally tailored strategy.
Firstly, consider each avenue of income at your disposal. The stuff coming in from another employer won’t be a bother – same filing process as usual. For self-employed income, organize each stream based on the nature of the work. Jobs of like nature get tallied up on the same form.
Prepare yourself mentally with a friendly reminder that quarterly tax estimates are a thing. It’ll make your life easier anyway. Just add it to your Lyft or Uber driver tax checklist. Also, expect to pay up to 30% in taxes on your gross annual income. Set the money aside whenever you get paid just as if you were an employer doing so for an employee (which, technically, you are).
Create a separate bank account for business-related transactions, particularly, one solely dedicated to business expenses. Doing so will spare you the hassle of saving receipts throughout the entire year. It’s also a bit easier than, say, weekly financial tracking and accounting. Remember, the more expenses you document, the more expenses you can write off, reducing your taxable income for the year.
“… a lot of people say, Oh, I got a 1099. And they just type it in their tax software, and they’re like, they’re gonna pay tax on $10,000. No, you’re gonna pay tax on the $10,000 minus all the expenses that you had related to that income.”
Download apps or software meant to ease the blow of tax stress. We mentioned a few above – shop around to see what fits your bill. Develop a strategy. Make it a lifestyle.
Become familiar with all of the essential tax forms for self-employed workers so you know what goes where when comes time to file. Get an idea of the important values that concern your situation, like the minimum gross annual income for your status.
Last but not least, be aware of the importance of organization! That’s what all of these tips are about, essentially. With no organization, things get scary in April. On top of the nerve-racking stress, there are financial repercussions for being disorganized. You will pay tax on a greater
dollar amount than you deserve, you may have to pay fees, and it will be harder for professionals to help you with less information. Here’s a final word from Jody on the matter:
“The people who, who pay a lot… are the people who are disorganized. So the more organized you can be, the better off you’re going to be, the better advice you’re going to [get].”
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