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If you drive for a ride-share company, you have to pay regular income tax. But you can claim several deductions for business expenses and reduce your taxes.
If you drive for Uber or Lyft, you’re considered an independent contractor. That means the ride-share company doesn’t automatically withhold taxes from your income as they would if you were a regular employee.
Instead, you sometimes have to pay estimated taxes each quarter of the year. You’ll still have to file a tax return before Tax Day, but you may not owe anything, or you may be eligible for a discount.
But you’re also eligible for certain tax deductions that only apply to driving your car for business, such as the standard mileage rate deduction and deductions for business expenses like your cell phone plan and parking fees. These tax deductions are often so generous that many Uber and Lyft drivers pay very little tax.
Both Uber and Lyft will report your income on Form 1099-K if you earned at least $20,000 over at least 200 rides. You may also receive Form 1099-MISC if you earned over $600 from non-driving payments, like referrals and bonuses. If you aren’t eligible to receive either form, you can download an annual summary of earnings.
Note that, because of the COVID-19 (coronavirus) outbreak, the deadline for filing and paying your taxes has been extended to July 15, 2020. However, Policygenius recommends filing your taxes as early as you are able. You may get your refund sooner, or, if you owe a tax bill, you can get a head start on paying it.
Most people who earn an income have to pay taxes on it. Although not everyone needs to file a tax return, most people should; you may discover that you owe more than you thought, or that you’re owed a refund.
How much tax you need to pay if you’re a self-employed ride-share driver, or even if you just drive for Uber or Lyft to supplement income from your full-time job, depends on how much income you earned on the platform. That’s because there are two types of taxes: income taxes and self-employment taxes.
Note that income includes not only the ride fare but also extra cash like tips and cancellation fees.
If you earned $400 or more working as an independent contractor — including all income you earned while self-employed — then you have to pay the self-employment tax, which pays for Social Security and Medicare. This tax is a flat rate of 15.3%.
Only the first 92.35% of your net self-employment earnings are subject to the self-employment tax, which means that you can deduct business expenses from your income before calculating how much you owe.
Your self-employment tax is separate from your income tax, which we’ll look at in the next section. Income tax is assessed at a proportion of your income rather than a flat rate. You may also be eligible for tax credits that reduce your overall income tax, but these credits don’t apply to self-employment tax.
The self-employment tax is similar to the FICA taxes that employers withhold from their employees’ paychecks, but employers cover half the FICA tax while independent contractors must pay the full amount. However, independent contractors can deduct 50% of the self-employment tax from their taxable income.
Uber and Lyft drivers must pay income tax just like regular employees. You’ll even use the same Form 1040 to file a tax return, and pay the same tax rate, which is based off the marginal tax brackets created by Internal Revenue Service (IRS).
If you made more than $400, you have to file taxes, because you could be subject to the self-employment tax described above. But you only have to pay income taxes on earnings that exceed the standard deduction, which was $12,200 for single-filers in 2019 and will be going up to $12,400 in 2020.
Your taxable business income is subject to its own deductions. You indicate both profits and losses on your taxes. We’ll delve into tax deductions specific to drivers for Uber, Lyft, and other car-centric businesses later.
If you expect to owe at least $1,000 in income taxes during a given quarter of the tax year, then you need to pay estimated taxes by the end of that quarter. (You’ll file a tax return the year following the tax year to account for taxes paid during the tax year.) If you pay too much, then you’ll get a tax refund after you file your tax return, but if you pay too little, then you’ll owe taxes.
Ride-share drivers and other self-employed people may find that it’s more complicated to file and pay their taxes than regular W-2 employees. That’s because you need to keep track of your profits and losses in addition to business expenses, and that often means filling out and filing more forms.
Check out our complete guide to filing your taxes.
You’ll use Form 1099 to fill out your Form 1040 (the tax return). If you don’t get a 1099, then you likely didn’t earn enough income. Uber and Lyft are required to send you one or both of these documents if you earn within certain thresholds:
Form 1099-K, which tracks self-employment income made via a payment card: debit cards, credit cards, and shared-value cards like gift cards. You should receive a 1099-K if you had 200 transactions (for Uber and Lyft drivers, this means rides) during the year and $20,000 in earnings.
Form 1099-MISC, which tracks miscellaneous income, including tips, cancellation fees, and bonuses like Quests and Boosts (for Uber drivers) and Express Drives (for Lyft drivers). You should receive a 1099-MISC if you had $600 in miscellaneous income.
Both Uber and Lyft also offer a tax summary, which doesn’t get filed with the IRS but can help you figure out your tax return in lieu of a 1099. The tax summary includes:
When you have your 1099s and other information, it’s time to fill out the tax forms. Most Uber and Lyft drivers only need to use the following forms:
Schedule C to Form 1040, on which you’ll record your profit and losses. Profit includes all your gross earnings, and losses include your business expenses, such as the cost of goods sold, depreciation of your car, and total mileage. Losses can be deducted from your business profit.
Schedule 1 to Form 1040, which is where you’ll record the amount on Schedule C. Although this form is for “additional income,” that includes your ride-share profits even if driving for Uber and Lyft is your only source of income. (Learn more about Schedule 1.)
Form 1040, which is your individual tax return. You’ll record all your income on Form 1040, including both W-2 and 1099 income. This is also where you can claim the standard deduction or include itemized deductions if you’re eligible, even if you claimed business losses on Schedule C.
Your taxes are based on your adjusted gross income (AGI), which is calculated by adding the income on Schedule 1 to your overall income on Form 1040. If your AGI is lower than $66,000, then you can file taxes for free online through one of the IRS’s partners. You can also use tax-preparation software like TurboTax.
Learn more about the difference between gross and net pay.
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There are numerous expenses associated with using your car for your business. Drivers can deduct their actual car expenses, which means expenses that arise out of the use of your car, such as maintenance, depreciation, parking fees, and car insurance premiums.
In addition to the actual car expenses, you may be able to deduct business expenses. When driving for Uber, Lyft, or another ride-share service, such business expenses can include snacks or water bottles for customers, your cell phone bill, and accounting software.
The standard mileage rate is an expense you can deduct per mile you drive for business during the tax year. If you claim the standard mileage rate deduction, you can’t claim most actual car expenses. That’s because it simplifies the complicated math that goes into calculating costs like depreciation and repairs.
In 2020, the standard mileage rate is 57.5 cents per mile, down from 58 cents per mile in 2019. (The IRS updates its mileage rates at the end of each year.) Many drivers who claim this deduction find that it benefits them more than calculating their actual car expenses.
The following actual car expenses can’t be claimed if you take the standard mileage rate deduction:
Learn more about how mileage reimbursement works.
But you can still claim the following actual car expenses if you take the standard mileage rate deduction:
Whether you itemize your actual car expenses or take the standard mileage deduction, you’re also eligible to claim other operating expenses. In other words, you can deduct your expenses for both usage of the car and for running a business that happens to be your car.
Such business expenses include:
After adding up all your profits and subtracting your car and business expenses, you’ll wind up with your total business income for the year. Many people can claim an additional deduction: the qualified business income (QBI) deduction.
The QBI deduction lets sole proprietors (as Uber and Lyft drivers are classified) deduct up to 20% of their business income from their overall taxable income.
For tax year 2019, which you'll report on your 2020 tax return, you can claim the QBI deduction if your taxable income falls within these thresholds:
(Read more about selecting the right tax filing status.)
The line for the QBI deduction is line 9 on Form 1040, right after calculating your wages and your standard or itemized deductions.
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