Working for Uber or Lyft is about more than just driving. As a self-employed worker, you are treated as a business by the IRS. It’s important to understand the tax implications of your side (or full-time) gig.
These are the key steps to filing your taxes:
- Understand how self-employment taxes work. You pay self-employment taxes in addition to your regular income taxes. This means you may have a larger tax bill when you file. The Roadmap to Rideshare Taxes Cheat Sheet explains self-employment tax concepts in an easy-to-follow map.
- Track your tax deductions. You are eligible for tax deductions for business expenses that can reduce your taxes. Compile a list of these tax deductions with receipts and keep a mileage log so you’re prepared to file.
- Pay taxes as you go. Your taxes are NOT automatically taken out of your income. Make estimated payments throughout the year to avoid a penalty.
- File your taxes. You’ll need to file Schedule C and Schedule SE with Form 1040. You’ll find your rideshare income information on your driver dashboard. To prepare to file, you can fill out the Rideshare Tax Organizer and find free tax filing locations in your area.
Unlike many employers, Uber and Lyft don’t provide benefits like sick leave or health insurance. When you sign up with the company, you don’t fill out a form to withhold taxes throughout the year. And, importantly, Uber and Lyft won’t pay a portion of your taxes for you.
Are Uber and Lyft drivers self-employed?
If you drive for Uber or Lyft, you are self-employed. As a driver for either company, you are an independent contractor rather than an employee. As an independent contractor, you provide transportation services to individuals. While working for Uber or Lyft, you set your own work hours and usually provide your own car and other resources necessary to do your job.
How does self-employment tax work?
Understanding self-employment tax
It is possible to owe $0 in income tax and still owe self-employment tax. Self-employment tax is an additional tax that you must pay to the federal government to fund Medicare and Social Security. These payments are your contributions to your Social Security pension and Medicare eligibility. If you were an employee, part of these contributions would be withheld from your pay and the other part would be paid by your employer. Because you work for yourself, you are responsible for both the “employer” and “employee” portions of the tax. For Tax Year 2020 (returns filed in 2021), the self-employment tax rate is 15.3 percent.
Self-employment tax is paid in addition to your regular income tax. It is possible to owe $0 in income tax and still owe self-employment tax.
Who must file taxes?
If you earn more than $400 from Uber or Lyft, you must file a tax return and report your driving earnings to the IRS. Most Uber and Lyft drivers report income as sole proprietors, which allows you to report business income on your personal tax return. If you earned less than $400 from Uber or Lyft, you may still have to file and report your earnings if you have to file for other reasons.
Which forms do you use to file self-employment taxes?
You will file Schedule C to report your profit to the IRS. On the form, you record all your business income (Uber or Lyft income) and business tax deductions (expenses). You pay taxes on your net income, which is your total income minus any business tax deductions.
You have several options for preparing and filing your taxes. If you made less than $72,000, you can file your return online at IRS Free File Alliance. If you choose to use one of these programs, read the fine print carefully. Each program has slightly different criteria for their software. In addition, some companies offer free state tax returns, while others don’t. If you make less than $56,000 and prefer to have your return prepared by an IRS-certified VITA tax preparer, you can contact your local free VITA tax preparation site.
How do Uber and Lyft drivers count income?
You must report all income you earn, even if you don’t receive any tax forms from Uber or Lyft. This includes income from any source, no matter how temporary or infrequent. Since you may not receive a tax form for all income sources, it’s important to be able to track your own income.You must report all income you earn, even if you don’t receive any tax forms from Uber or Lyft.