Uber Driver Taxes – The Complete Guide For 2021
Uber has taken over the world – almost single-handedly creating the category of ‘ride sharing’. Of course, without their millions of drivers – Uber would have nothing.
Unlike most occupations, Uber drivers are in a somewhat unique sitation, when it comes to taxes. Let’s explore what Uber drivers pay in taxes, and what situations may require special handling or treatment.
What Taxes Do Uber Drivers Pay?
In the United States, most full-time employees have their taxes deducted right from their paychecks, but Uber famously considers their drivers independent contractors, putting them in a different class of employment and leaving them to handle taxes on their own.
So how do they do it?
Most Uber drivers are sole proprietorships, which is another way of saying an Uber driver is treated like their own independent business for taxes, where the person and the business are one and the same. The money that the driver brings in is the business’s income, and the expenses that the driver takes on are business expenses (when related to the actual business).
Like anyone who earns an income, employee or contractor, Uber drivers pay their income tax at the regular rates, same as an employee, but unlike an employee it’s up to the driver to accurately track and report out how much income they made for the year to determine how much they owe. Uber drivers will tally their total income at the end of each year, and pay income tax based on the tax rates at the beginning of that year.
They’ll likely need to make quarterly estimated payments too.
It’s complicated, but it’s easier than it sounds as they get a little help from Uber in maintaining records.
1099-K And 1099-MISC Forms
If an Uber driver brings in more than $20k in ride payments and has completed at least 200 trips in a year, Uber will provide them with a 1099-K form. This form lists the total amount of money they’ve brought in in payments over the year, their “business income”.
Some of that income will go to Uber, so the driver will need to make sure to deduct Uber’s cut (as well as any other business deductions) when reporting their personal income.
If an Uber driver brings in more than $600 in non-rider payments (which can include nearly any type of other income, like referrals), the driver will be provided with a 1099-MISC, which provides a similar function.
If drivers make less than that, are concerned that the forms may not be accurate, or have additional extenuating circumstances, they can also access this information through their Uber driver dashboard.
Does This Mean Uber Drivers Can Report Any Income They Want To The IRS?
While some independent contractors with less scrupulous clients may get away with that, Uber drivers will all be accurately reporting their income. Uber sends their 1099 tax forms to the IRS which ensures everyone’s taxes are being paid appropriately (though Uber drivers will still have to do their own deductions).
There is one additional wrinkle for Uber drivers paying taxes: the self-employment tax. This is the Social Security and Medicare tax.
Like income tax, most people don’t think too much about these taxes as they’re typically withheld by their employer, just like income tax. Which means full-time Uber drivers, and any other independent contractor, are on their own on making sure these get paid properly (anyone making under $400 in total income is exempt from these taxes).
Income tax and self-employment tax are the two forms of taxation Uber drivers need to be concerned with, but those don’t just come in the form of annual payments once a year, like a standard employee. While Uber employees only file once a year, they’re still required to make quarterly payments throughout the year.
While it tends to be self-evident that Uber drivers who earn an income are going to need to pay income taxes, the quarterly estimates requirement may come as a surprise. Full-time Uber drivers are required every few months to pay estimated taxes for those individual periods (January through March, April through May, June through August, and September through December) rather than having their taxes withheld by an employer.
However someone wants to calculate their quarterly estimates, they typically need to get it close enough to cumulatively be within 90% of their annual tax burden or 100% of their previous year’s, or they’ll likely be facing penalties.
This sounds like a harsh requirement, but it helps make sure no one gets too off-track and hit with a major tax expense every year that they’re not able to cover. If a driver is getting off track on their taxes, they’ll be able to figure that out early on and fix their withholdings, rather than facing an insurmountable tax bill after a year.
This is where most of the complications for Uber driver taxes are going to occur: deductions. The 1099 forms will list all business income, meaning every dollar (that Uber is aware of) that gets paid to the driver, but the driver isn’t responsible for paying taxes on all of this income.
This is money that the driver brought in but won’t be responsible for paying taxes on, and usually takes the form of an expense.
The most obvious deduction, or expense, is the driver’s payment to Uber (usually 20%-30%, but it varies). A discerning driver would also keep records of all their other expenses used in operating their service, so any other expenses used to keep the car running.
These can include mileage used for the service, car maintenance, gas and tolls. Any additional expense a driver incurs in the course of work could potentially be deducted from the amount the driver pays taxes on.
Do These Guidelines Apply To All Uber Drivers?
There are a lot of different types of Uber drivers: the standard ride-share drivers, Uber Eats, Uber Delivery, etc. These guidelines will generally apply to any of these drivers regardless of the service they’re offering.
But there are more factors to consider when determining how an Uber driver might pay their taxes.
Notably, these tax requirements don’t always apply to part-time drivers making very small amounts. For example, anyone making under $20k in transactions won’t have a 1099-K form meaning they’ll need to track and report their income on their own, and any independent contractor whose net income is under $400 won’t have to pay self-employment tax.
Anyone who expects to make less than $1000/year may be exempt from the quarterly estimated payments.
Additionally, different people have their companies set up different ways. Sole proprietorship is the most common for Uber drivers, but it’s not the only option.
For example, they may want to form an LLC and be taxed under the corporate tax rate, rather than the income tax rate (but carry additional burdens as a corporation).
Taxes can get complicated, and there are tons of ways someone might operate as an Uber driver or set up their taxes differently for various reasons, but the majority of them, if they’re full-time Uber drivers, will find it most beneficial to operate as a sole proprietorship and operate under these guidelines for paying their taxes.
What About Lyft?
Lyft is very similar to Uber, so the tax situation is not much different, when it comes to Lyft drivers. For most Lyf drivers, you will want to follow the same guidelines as Uber drivers.
However, as always, we recommend utilizing a tax professional – they will get the best overall outcome for your tax return, deduct all relevant business expenses, make sure you are completely covered as an independent contractor, and much more.
While it may seem straightforward, there are actually many hidden deductible items for Lyft (and Uber drivers), as well as many hidden business expenses. If you have a normal office job, your tax return will usually be easy to fill out – but if you’re self-employed, it quickly becomes more complex.
Other Factors To Consider When It Comes To Uber (And Lyft) Tax Filings
While at first it may seem like you are at a disadvantage when it comes to filing your tax return as a driver, you can actually utilize forms like 1099-misc, deduct many different business expenses, and maximize your self-employed status for as many deductible items as possible.
While you may be a little familiar with some of these loopholes as a layperson – a qualified tax professional is going to know all of them – and then some. You should also know your standard mileage rate, your actual expenses, your gross earnings, and even your gross income.
Programs like roadside assistance may be deductible, and even your cell phone use may count towards lowering your overall taxes. Self-employment income is treated differently than standard income in a tax summary, and your tax documents and tax advice will be a little different than that given to most office workers.
It may be surprising, but even cell phone chargers may count towards a deduction – helping to lower your overall taxable income during any tax year. Your driving income and net earnings always make a difference when it comes to taxes, but relevant documents like form 1099-misc and small wrinkles like standard mileage deduction can help with lowering your taxes.
Again, a qualified professional (like an accountant) will be much better at your tax preparation, and they will ultimately save you far more money than the total of their initial service fees. Even small items (like parking fees) can usually be deducted somehow, so make sure you get a highly qualified individual for your tax preparation.
The Bottom Line On Uber Driver Taxes
Even if you drive for Uber (or Lyft) part-time – you should track all business miles, and think of yourself as a small business. A car for business use is treated somewhat uniquely by the IRS, and though you’ll still be an independent contractor – you should take the maximum deductions for anyone who is self-employed.
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