Tax Tips for Lyft Drivers: Ridesharing Taxes
When you’re a driver for Lyft, the most important thing to understand is that ridesharing drivers are independent contractors, not employees. That’s why Lyft doesn’t withhold taxes from your rideshare payments. That’s also why you’ll file taxes as an independent business owner when tax season rolls around. Use these tax tips to navigate your way through filing your self-employment taxes and minimizing your tax bill.
Key Takeaways
- As a Lyft driver, you're considered an independent contractor, not an employee, so you must file taxes as an independent business owner.
- You can get income information on your Lyft Driver Dashboard or Forms 1099.
- Your gross ride receipts include all charges to passengers, including Lyft fees and tolls. You can deduct these fees that you pay to reduce your taxable earnings.
- You can deduct business expenses, including mileage, auto expenses, and mobile phone costs, to lower your taxable income.
The 411 on 1099 tax forms
As a self-employed individual running your own business, you won't receive a W-2 from Lyft that details your ridesharing earnings for the year. Instead, you’ll receive this type of information on your Driver Dashboard or on one or more Forms 1099 that will be mailed to you, depending on how much you earned. Here’s how it breaks down:
- For tax years before 2024, the threshold is more than 200 transactions and more than $20,000 in gross ride payments from passengers during the year. This is the IRS requirement, however, you are likely to receive a Form 1099-K in the mail even if you have fewer transactions with less gross receipts.
- There's no threshold for payment card transactions such as credit card swipes.
- If you earned at least $600 from non-driving earnings, such as referrals and bonuses, you should receive a Form 1099-NEC (1099-MISC in years prior to 2020).
The IRS is gradually phasing in new 1099-K reporting requirements for payments from third-party processors like Venmo and Paypal. In 2021, Congress changed the reporting threshold from over $20,000 in payments and more than 200 transactions to over $600 in payments regardless of the number of transactions. But instead of using the new $600 threshold right away, the IRS applied the previous reporting threshold for the 2022 and 2023 tax years. For the 2024 tax year, the IRS plans to use a $5,000 threshold, regardless of the number of transactions. The tax agency hasn’t announced its plans for after 2024 yet. On the other hand, some states have already started using the $600 threshold for their own reporting requirements.
If you didn't reach these income thresholds, you can find a detailed breakdown in your Annual Summary from your Driver Dashboard (sign in to your account, look under the “Driver” heading, and select “Tax Information”). Your driver earnings will be posted online or mailed to you by January 31. It’s ok if your Tax Information doesn’t include everything listed—not all drivers have the same forms and expenses. Whether you receive a 1099 or not, it’s your responsibility to determine what you should report as taxable income.
Read How To Use Your Lyft 1099s for a breakdown of how to use them to complete your tax return.
Gross ride receipts
When you review your income information on your Driver Dashboard or on your 1099-K, you’ll see that your gross ride receipts are likely greater than the amount you took home in earnings. That’s because the IRS requires Lyft to include everything that was charged to your passengers in the gross receipts.
That includes the Lyft Fee, tolls, and other fees. Don’t worry. You can deduct these additional amounts from your income so you don’t pay taxes on them. Lyft makes it easy by providing annual totals for all these additional amounts on your Driver Dashboard. If you are using TurboTax Premium, check out "How do I enter my Lyft tax information?" for step-by-step instructions.
Reporting your self-employed business profits
As an independent self-employed business owner—known as a sole proprietor—you’ll pay taxes on the profits you earn from your ridesharing business. You’ll report this income using Schedule C, Profit or Loss from Business. You’ll also use Schedule C to list your business expenses.
- To calculate the profit for your business, you’ll subtract your business expenses from your income.
- The difference goes on line 31 of Schedule C and on your 1040.
- If this amount is $400 or more, you’ll enter it on Schedule SE, which is used for calculating your Medicare and Social Security taxes (self-employment tax).
To jumpstart your business tax deductions, Lyft provides you with totals for some business expenses on your Driver Dashboard. This includes the Lyft fee, tolls, and other fees discussed above. It also includes the miles you drove while online. These are just the beginning of your business expenses.
TurboTax Tip:
Keeping detailed records of all business-related expenses and mileage is crucial for maximizing deductions and ensuring compliance with tax regulations.
Deducting mileage and auto expenses: a driver’s largest tax deduction
Your online miles can factor into one of your largest tax deductions, which is the business use of your car. There are two ways to calculate this important deduction:
- Add up the actual annual expenses of operating your vehicle in service of your business. These expenses include gas, oil, maintenance, repairs, auto insurance, and depreciation or lease payments.
- Or use the standard IRS mileage deduction. For 2024 the rate is 67 cents per mile.
The standard IRS mileage deduction often results in a higher deduction, and it’s generally the easier option. To calculate your deduction, multiply your total business miles by the IRS rate. You can also include the amount you spent in tolls and parking fees. Example:
- You drove 5,000 miles and paid $300 in tolls and parking fees.
- Your total auto expense equals $3,575 (5,000 X $0.56 = $3,275 + $300 = $3,575)
If you use the IRS mileage deduction, be sure to include all your business driving, not just the figure Lyft provides for miles when online. You can also count:
- the miles you drove to pick up passengers
- the miles you drove returning from drop-off points to a place to wait for another ride request
- any other mileage related to the business
However, your miles to go home are generally not deductible since these are considered commuting miles.
You must keep careful records of the business miles you drive when not online. The IRS can disallow mileage you can’t document with mileage logs or other records.
Deducting mobile phone expenses
Your smartphone is a major tool of your trade, and it can also be the source of some of large business expenses. These expenses can include:
- cost of the phone
- your service plan
- repairs
- accessories, such as chargers, cables, and mounts
As with business use of your car, you can only deduct the portion of your smartphone costs that apply to your business. That’s why many ridesharing professions buy one smartphone solely for use in their business. That way you can deduct everything associated with that phone as a business expense, making it simpler to save on your taxes.
Additional business expenses you can deduct
Every dollar you spend on your business can reduce your tax bill, so be sure to keep track of everything. Additional business expenses can include:
- snacks and refreshments for your passengers
- electronic toll transponder
- floor mats
- car tool kit
- first aid kit
- tire inflator and pressure gauge
- portable battery jump pack
- flashlights and flares
- business taxes and licenses
- additional (non-auto) insurance for your business
- roadside assistance plans
- office supplies
- other miscellaneous expenses
Didn't receive a 1099? Here's how to find your earnings
You may not meet the income and transaction thresholds that call for a 1099-K or a 1099-NEC. All Lyft drivers, however, will receive a 2024 Annual Summary document which will show you all earnings. You can find your Annual Summary through the Tax Information page of your Driver Dashboard.
The yearly summary will have information such as:
- online trip mileage
- gross earnings (the amount passengers paid before fees)
- non-ride earnings such as referrals or incentives paid to you
- tolls
- Lyft service and platform fees
- third-party fees
Your Annual Summary won't include the mileage when driving to your first passenger, between passengers and on the way home at the end of the day, so be sure to keep personal records of these miles separately.
You should also keep records of the portion of your wireless plan used for business, passenger treats, parking/tolls, fees, phone accessories, and your vehicle expenses.
Using your Annual Summary document and personal records to complete your taxes
For your self-employment income, you will need to enter the gross ride payments amount and any non-ride payments such as referrals, incentive and/or bonuses you received. Once you have entered your earnings, it's time to start deducting!
- Use your Annual Summary to get your Lyft service fees, other fees you paid and your mileage for the rides you provided.
- Use your personal records for the mileage not reported on the yearly summary (driving to your first passenger, between passengers, and on the way home at the end of the day) and to deduct a portion of your wireless plan, passenger treats, parking/tolls, fees, phone accessories, and your vehicle expenses.
If this is your first year driving for Lyft, you can also deduct the cost of your initial inspection and background check that was required for you to start driving.
Check out "How do I enter my Lyft tax information?" for step-by-step instructions.
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