When you're a driver for a ridesharing company such as Uber, Lyft, or other car sharing service, the most important thing to understand about your taxes is that you are probably not an employee of a ridesharing company. Drivers for these companies are usually independent contractors, a fact that has tax implications, both at filing time and year-round.
- You're the boss AND the employee
- Tax deductions for your car
- Other tax deductions for rideshare drivers
You're the boss AND the employee
Being an independent contractor means that you're self-employed . As far as the rideshare company is concerned, you're the owner of a separate business that it uses to provide driving services. So when you receive a payment, understand that it's not a traditional "paycheck," and likely no taxes have been taken out.
It's up to you to take care of federal and state income taxes, as well as Social Security and Medicare. Combined, these taxes can easily reach 30% to 50% of your income, so make sure to set aside money to pay them.
If you're accepting ridesharing fares more than occasionally, you may be required to file quarterly estimated income taxes.
At tax-filing season each spring, you'll be reporting your self-employment income and expenses on Schedule C, as well as filling out Schedule SE for self-employment tax if your net income from the work is $400 or more.
Tax deductions for your car
Since you're an independent business owner, just about any money you spend on your gig as a rideshare driver will be a tax-deductible business expense. The first thing that probably comes to mind is your car. There are two ways to take a deduction for the business use of your car:
- Deduct the actual expenses of operating the vehicle for business, including gas, oil, repairs, insurance, maintenance and depreciation or lease payments.
- Take the standard IRS mileage deduction. For 2023 the rate is 65.5 cents per mile.
If you use your car for both ridesharing and personal transportation, you can deduct only the portion of your expenses that apply to the business use. And whichever type of deduction you claim, it's critical that you keep thorough records. The IRS could disallow any tax deductions you can't support with:
- Mileage logs
- Other documentation
Other tax deductions for rideshare drivers
Commissions you pay to the rideshare company are a business expense, as is any cost you may have to pay for technology installed in your car. Other tax deductions include:
- Water, gum or snacks for passengers
- Tolls and parking fees
In addition, ridesharing companies typically require use of a smartphone.
- The portion of your mobile phone expenses attributable to your rideshare work can be used to reduce your self-employment income.
- For simplicity's sake, it may make sense to have a dedicated phone for your rideshare business.
Making sense of your 1099 forms
As a contractor, you won't get a W-2 form from your rideshare operator, but you will likely receive one or more 1099 forms. Rideshare companies generally distribute these forms according to the same criteria:
- Payments for processing your customers' payments are reported on Form 1099-K. The amount shown in Box 1a of this form is all the money that the rideshare operator collected from customers for rides that you provided.
- This will likely be more than you actually received in payment, since it includes the rideshare company's commissions and other expenses. Your rideshare operator will provide you a tax summary you can use to translate the 1099-K information into some of the income and expenses to report on Schedule C.
- Payments for other activities, such as referrals or non-driving-related bonuses, are reported on Form 1099-NEC (1099-MISC in prior years). This money is income to report on Schedule C.
The IRS planned to implement changes to the 1099-K reporting requirement for the 2023 tax year. However, the IRS recently delayed the implementation of the new $600 reporting threshold for goods and service transactions from third party processors like Venmo and Paypal, reverting tax year 2023 back to the previously higher 1099-K reporting threshold (over $20,000 in payments and more than 200 transactions). If you don’t receive a 1099-K, the IRS still expects you will report all your income, regardless of the amount.
There is no threshold for payment card transactions such as credit card swipes.
Similarly, if your non-driving income was less than $600, you might not get a 1099-NEC. Even if you don't get any 1099s, however, you are responsible for reporting and paying taxes on all the income you receive.
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