Uber Tax Guide: How to Navigate Self-Employment Taxes
Tax season is a time that all working Americans are familiar with, but for rideshare drivers, what you owe may be different than what you expect. If you want to avoid an IRS audit, understanding how to properly complete the Uber tax filing process is a crucial part of your career.
We all know of the Uber driver gig as an opportunity to be your own boss. Your flexible driving schedule is made possible by the fact that you’re classified as an independent contractor — and therefore, self-employed — rather than as a traditional employee. This classification makes a huge difference in how much you owe, what tax forms you need to complete, and how you file your tax return each year.
This Uber tax guide will help you get a full grasp of your financial responsibilities as a rideshare driver.
- Uber Driver Tax Obligations
- Calculating Your Income
- Uber Tax Deductions
- How to File Uber Taxes
- Common Mistakes to Avoid
- Recommended Tax Software for Drivers
- Frequently Asked Questions
Uber Driver Tax Obligations
Any income you earn from independent contractor gigs is subject to two categories of taxes: income and self-employment. We’ll dive deeper into each of these in this section.
But first, we need to make an important distinction.
The first thing you need to understand when filing your rideshare taxes is that Uber partners and Lyft drivers are considered independent contractors. The companies do not withhold any taxes from the money they pay you.
All they’re responsible for is informing the IRS of the wages they paid you and sending you a Form 1099 at tax time. This form contains a summary of all the non-employee income you received as a Lyft or Uber driver. If you drive for both companies, each will send you a separate form.
To understand self-employment taxes, you must first understand how Medicare and Social Security taxes traditionally work.
Regardless of your tax filing status, you owe 2.9% of your income in Medicare taxes and 12.4% of your income in Social Security taxes every single year. Traditionally employees typically don’t have to worry about this obligation when tax time rolls around for two reasons. First, their employers cover half (7.65%). Second, the other half is automatically withheld from your paycheck.
As an Uber driver, you are your own employer, which means you’re responsible for paying both halves — collectively known as your self-employment tax (15.3%). Plus, since no taxes are withheld from your income, you’re responsible for setting money aside from each of your weekly direct deposits to account for this Uber tax obligation.
Unless you are part of a small selection of Americans who are exempt from income taxes — which most notably includes extremely low-income households — you’ll also need to pay your standard federal income taxes on your Uber earnings.
What you owe will always be based on seven current tax brackets. The income range for each bracket will vary depending on whether you file taxes as single, head of household, married filing jointly (including surviving spouses), or married filing separately.
For example, here are the federal tax rates for 2021 income if you’re a single taxpayer:
- 10%: Up to $9,875
- 12%: $9,876 to $40,125
- 22%: $40,126 to $85,525
- 24%: $85,526 to $163,300
- 32%: $163,301 to $207,350
- 35%: $207,351 to $518,400
- 37%: $518,401+
Don’t worry — you won’t be paying 22% on all your income just because you reached $40,126. Higher tax rates are only imposed on the portion of your income that falls into each specific bracket, so you’ll still only be paying 10% on the first $9,875 you earn. Then, you’ll pay 12% on any income that brings your income up to $9,876 to $40,125 (so the next $30,250), and so forth.
If your state requires you to pay income taxes, you’ll also need to consider what you owe based on your local tax brackets. As of 2021, only residents of nine states are exempt from state taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Calculating Your Income
Uber drivers don’t have to worry about painstakingly adding up their business income. Every year, an Uber tax summary will be available to you on your Partner Dashboard. This summary will include the total of all payouts you received from the ridesharing company in the most recent tax year.
Uber drivers in many states can also qualify to directly receive up to two tax forms via mail or email, making tax preparation even simpler. These forms are as follows:
- Form 1099-K: This is an official tax document sent to drivers who earn at least $20,000 from customer payments and complete at least 200 trips.
- Form 1099-MISC: This is another official tax document, specifically for drivers who earn at least $600 from referrals, promotions, and other earnings that aren’t generated directly from customer payments.
Uber Tax Deductions
While having to pay self-employment taxes may not be ideal, being an independent contractor does come with the perk of tax deductions.
Tax deductions reduce your taxable income, so if you earn $30,000 and are eligible for $14,000 in deductions, only $16,000 of your income will actually be taxed. In some cases, it can even drop you into a lower federal tax bracket, leading to dramatic reductions in your tax rate.
What Expenses Can Uber and Lyft Drivers Deduct?
When filing your rideshare driver taxes, you’ll use a tax form called Schedule C to record your tax deductible business expenses. Don’t worry about understanding the particular details of filling out the form — any tax preparation software you use will walk you through the process.
But what exactly can you deduct? Can you just choose any expense you incur while driving for Uber and Lyft? Sadly, no. There are specific rules for what expenses you can write off.
First and foremost, for the purposes of this article, we’re discussing business expenses. There are other deductions available, but they’re not relevant here. We’re interested in the expenses that relate to the operation of your Uber or Lyft business.
What sorts of expenses qualify? In general, you can deduct any expense that’s necessary for the normal course of business, as long as someone else doesn’t reimburse you for it. Since Uber and Lyft don’t reimburse drivers for expenses, you don’t have to worry about the reimbursement aspect. You’re more likely to run into trouble when attempting to deduct expenses that are not necessary for running your rideshare business.
For example, you can’t deduct the cost of what you spend on fueling your car when you’re not giving rides. This is personal transportation, and it doesn’t count as a business expense. However, you could deduct the cost of gas you used while giving rides.
The full list of possible tax deductions is massive. In fact, most of the U.S. tax code exists to cover all the possible deductions you can take. Below are the three types of Uber driver tax deductions that you’ll more than likely qualify for.
To get a better understanding of what expenses you can and can’t deduct, let’s look at some common Uber and Lyft tax deductions:
1. Business Expense Deductions
Any job-related expenses you accrue directly as a part of your business operations can be written off. These commonly include:
- Car maintenance expenses (including the cost of car washes, vehicle repairs, oil changes, and new tires)
- Parking and toll fees
- Rideshare insurance payments
- Commercial license fees and registration fees
- Car accessory purchases (like car air fresheners, phone chargers, and dash cams)
- Passenger freebie purchases (like water bottles and mints)
- Gas, garage rent, roadside assistance
- Car depreciation
You may also be able to deduct your car loan, car insurance, and cell phone payments, but if your vehicle and phone are also used for personal use, you can only deduct a percentage of these payments. For example, if 60% of your smartphone use is off the clock, you’ll only be able to deduct 40% of your monthly phone bills to match your business use.
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We recommend using the Stride Tax app, or our favorite accounting software Freshbooks, to track all of your expenses. This will help you accurately capture and categorize your actual expenses year-round, so you can easily claim deductions. The app also allows you to save receipts digitally, so you can show proof of purchases if you’re ever selected for auditing by the IRS.
2. Mileage Deductions
As a rideshare driver, the mileage deduction is perhaps the most important to understand. It offers a simple way to calculate and write off the expenses you incur when driving your vehicle for business purposes.
While gas purchases are no longer deductible as a traditional business expense, you can still get deductions based on the current IRS standard mileage rate (57.5 cents per mile for 2021). Simply multiply the current rate by the total miles you drive for Uber to get your standard mileage deduction.
While your Uber tax summary will include the total miles you drive while logged online, we do recommend keeping your own mileage log to track other job-related miles. This may include when you’re driving to your annual Uber vehicle inspection, heading an auto parts store for maintenance supplies, or even heading to your CPA for Uber tax advice.
You must keep track of these miles yourself. To make this easy, we recommend you use a mileage tracking app. Check out our reviews to find the mileage app that’s right for you.
3. Standard Tax Deduction
Finally, every independent contractor is eligible for a standard deduction just for being self-employed. The amount varies by year, but for the 2021 tax year, you’ll get to deduct:
- $12,400 for taxpayers who are single or married and filing separately
- $24,800 for taxpayers who are married and filing jointly (including surviving spouses)
- $18,650 for taxpayers who are heads of households
You may qualify for additional standard deductions if you can claim a dependent, are older than 65, or are blind.
4. Cell Phone Expenses
If you have a dedicated cell phone that you use for your rideshare work, you can deduct any costs related to using it. This could include the purchase price of the phone, as well as the cell service plan you use and any relevant phone accessories, such as a phone mount.
However, things can get more complicated if you use the same phone for business and personal use (as many drivers do). In this case, you can only deduct the percentage of your phone expenses that relate to your business. It can be tricky to calculate this, and in many cases the amount it would save you on your taxes is not significant enough to be worth the time required.
5. Service Fees
Whenever you give a ride, Uber takes a percentage of the fare. This amount is deductible, as it is an expense that you incur in the course of your business.
Drivers often overlook this deduction, as Uber and Lyft don’t go out of their way to show it to you. To view these expenses for Uber, go to your Tax Summary on Uber’s website. To find them for Lyft, check your Driver History within the Driver Dashboard. You can also use both of these dashboards to find your net income as a driver.
6. Complimentary Items for Passengers
If you keep snacks, bottled water or gum in your car as an amenity to offer passengers, you can deduct the expenses of these items. Just make sure to keep detailed receipts.
8. Accounting Software and Tax Preparation Fees
Whether you pay someone else to help you prepare your tax return or use tax preparation software, you can deduct whatever this service costs you.
How to File Uber Taxes
Paying a tax expert to help you file taxes is always the safest and easiest route to take, but if you want to save money and do it yourself, you’ll need to be aware of a handful of deadlines — not just the April 15 tax day.
What Tax Documents Do I Need?
Banks will often send out a 1099-K to those who have earned over $20,000 or have collected at least 200 payments via Paypal, credit, or debit card. The IRS started issuing the 1099-K in an attempt to improve tax compliance from independent contractors.
The Form 1099 variant is an essentially a catch-all for contract workers. Citizens may receive a 1099-MISC if they earned royalties or if a business has paid them for services rendered.
For example, any physical cash Uber drivers receive from a passenger who writes off the amount as a tax expense. During such events, Uber drivers will typically receive a 1099-MISC from the business. If not, they are required to report the earnings on their own via this form.
Schedule C Form
As the sole proprietor of your rideshare business, one of your responsibilities is to mark all expenses and income you handle under the label ‘self-employed’. Combine the data that you used in the 1099-K and 1099-MISC. Then, use this data to fill out the Schedule C Form.
Once you have completed Form Schedule C, the next step is to tackle the Schedule SE. Uber drivers use this form to calculate how much of their income is taxable.
This amount can be found by subtracting Uber fees and business expenses from your income. The remaining amount is your net profit. Plug that number into the Schedule SE form to find out how much self-employment tax is due.
The final document taxpayers need to fill out during the Uber tax filing process is the U.S. Individual Income Tax Return, or Form 1040. This document is used to assess all personal clarifications that determine how your income should be processed.
For example, a Form 1040 provides a way for taxpayers to identify spouses and dependents, which may qualify them for additional deductions.
The Uber Tax Filing Process [Overview]
Quarterly Estimated Taxes
Since Uber drivers do not get the benefit of withheld taxes, you’ll most likely need to pay estimated taxes throughout the year or face cash penalties for not doing so. The only exception is if you expect to owe less than $1,000 in total taxes (including taxes you accrue from other gigs).
Quarterly estimated taxes are due four times per year on January 15, April 15, June 15, and September 15 (dates may shift, if they fall on weekends or federal holidays). Your January 15 payment is always a payment for the previous tax year.
So how do you actually estimate what you owe? You can use Page 6 of Form 1040-ES for your calculations.
However, if you want to be safe, you can also simply pay 100% of the total taxes you owed in the previous tax year over the course of four payments. This percentage will need to be 110%, if you are considered a higher income taxpayer, as defined on Page 1 of Form 1040-ES.
To pay your quarterly estimated taxes, you can pay online here with your bank account, credit card, or debit card. You can also mail in Form 1040-ES with a check or money order. Alternatively, you can pay by phone at 888-729-1040, 844-729-8298, or 888-872-9829 with a credit or debit card. Fees may apply depending on your payment method or channel.
Annual Tax Filing
Even after you’ve paid all your quarterly estimated taxes, you still need to complete your annual filings on April 15, along with all other taxpayers.
The first form you need to file is Schedule C (Form 1040). This is where you’ll be able to report business expenses, so you can get deductions. Make sure to pay close attention to Schedule C instructions — or use a free online filing program to make things easier — as misrepresenting your expenses can lead to penalties later.
Then, you’ll need to file Form 1040. This is the most important form that summarizes exactly how much you owe, minus what you already paid in quarterly estimated taxes. This may be nothing, but more likely you’ll need to pay the difference or you’ll be entitled to a tax refund. An online filing program or tax software can help you complete this form and set up your payment.
If you live in a state that requires state income taxes, you’ll need to file accordingly as well. Your state government should provide the right forms on its primary website, or on dedicated treasury or Department of Revenue sites.
Common Mistakes to Avoid
Driver’s gross income does not include the Uber fees that are instantly removed. Due to this, it is very common for rideshare employees to calculate expenses without taking the Uber fees into account.
Be sure to only work with the income figure that is generated after you have subtracted Uber’s cut. Furthermore, do not shortchange yourself. All Uber fees that you subtracted from your gross income are tax deductible.
Many rideshare drivers make the mistake of trying to deduct their vehicle expenses twice. You can avoid this by choosing either the Standard Mileage Deduction or Actual Expense Method before filing.
Drivers that prefer to use the Actual Expense Method should start keeping track of their receipts at the beginning of each year. Doing so will maximize the total amount of deductions you qualify for during the Uber tax filing process.
Not Saving Enough
Spending money without paying taxes on it first can leave you owing the IRS a hefty amount come tax season. To avoid this financial nightmare, set aside a portion of your paycheck each week. Save up this money and do not spend it.
The self-employment tax rate is about 15.3%. Additional tax rates added to this, such as local, state, and federal, will vary. To compensate for this, we encourage drivers to set aside 30% of their income for the sole purpose of paying taxes.
Worried you didn’t save enough? Come explore this Uber driving advice to maximize your earnings before tax reason.
Business vs. Personal
As mentioned previously, deducting expenses that border between business and personal use can be tricky. The IRS will audit you if they suspect that you are trying to deduct personal items instead of business expenses. To avoid this, make sure you avoid filing personal cell phone data usage and mileage recorded for non-business purposes.
Recommended Tax Software for Drivers
There are many tax filing services online. Each system offers various features and prices that correlate with the service. Although there are a few free ways to file your taxes digitally, only a couple of these options include all of the forms that independent contractors need to fill-out.
TurboTax uses simple language to guide you through the tax filing process.
The software double checks possible deductions you might have missed and directs you to where to find it. Pricing for the Self-Employed Version is rather expensive, however, with a federal charge of $114.99 and a $39.99 fee for state.
Supporting the most tax form coverage and schedules with very few exceptions, H&R Block is another great option for filing taxes. For starters, they offer several options on how to go about the tax filing process as an Uber driver.
This can be very useful for those who prefer personal, non-automated assistance. Plus, H&R Block costs significantly less for those filing as self-employed. Federal is $74.95 and state is an additional $19.95.
Our last recommendation is TaxAct. Until a few years ago, TaxAct was a free tax filing service that included e-filing service.
TaxAct provides clear, straightforward filing experience at a noteworthy price. Filing your federal tax return as an independent contractor will cost $37. The price for filing your state taxes is $25.
Frequently Asked Questions
Taxes are an important responsibility for most workers in the United States, and when you’re an independent contractor, you must be particularly mindful about what you owe. Get more tax tips by reading our answers to frequently asked questions:
1. Do I need to pay taxes on tips if I receive them in cash?
Legally, you must report all of your Uber earnings, including all tips. Although cash tips won’t show up in your 1099, since they cannot be tracked by Uber, they are still considered taxable income, so don’t forget to add these earnings when you file.
2. How does the Lyft tax process compare to Uber’s?
Lyft and Uber taxes can be filed using the same process, as Lyft drivers are similarly classified as independent contractors.
3. Will Uber send me a separate Form 1099-K for my Uber Eats income?
No. If you drive for both Uber and Uber Eats, your earnings from both will be listed on the same form. This makes it much easier for you to file your Form 1040 at the end of the year.
4. What if I Don’t File Taxes?
Filing taxes is an important task that everyone is required to participate in. Citizens that do not file their taxes are subject to severe fines.
Initially, an interest rate and late fee are tacked onto the amount owed. These fees are compounded daily and can inflate the final amount owed to staggering numbers within two months.
If these penalties are ignored for any longer, the government can enforce devastating effects.
The process begins with the IRS issuing a Federal Tax Lien. When a citizen receives this warning, the IRS is essentially claiming all of your property, such as a car, boat, or house, as theirs. Further measures will be taken if this red flag is simply tossed aside.
In an effort to settle the amount of taxes you owe, the IRS can seize all of your property. Citizens that do not possess enough property to pay off the amount owed will start to notice a steep cut in their paycheck. If this process of paying off a tax debt is evaded, you can be charged with tax evasion and sent to jail.
Know What You Owe
Uber taxes can make the tax filing process a little more complicated, but as long as you understand what forms you need and track all of your income and expenses, you’ll get the hang of it in no time. Even if you don’t have the budget to hire a tax expert, there are plenty of free filing resources online that you can use to avoid any penalties.
If you’re just getting started with Uber and need a little help calculating your estimated taxes, read our guide on how much Uber drivers make.
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