Lyft 1099 Guide To Easily Take Care Of Your Taxes For The First Time
If you are a Lyft 1099 driver, you are considered a small business and you have to handle your tax filing accordingly. After all, you are considered an independent contractor. Essentially, the ride-share company doesn’t automatically withhold taxes from your income as they would if you were a regular employee. In this article, we'll go over everything you need to know to make your Lyft taxes a breeze during tax time.
What Tax Forms are Provided to Lyft Drivers?
At a minimum, all Uber drivers and Lyft rideshare drivers will receive a 1099 but there are several other documents made available to Lyft drivers. Lyft drivers will potentially receive a 1099-K, 1099-NEC, and an Annual Summary document. It is important to understand what information is on each form and how the form should be used this tax season.
Who Will Receive a Form 1099-K?
There are several rideshare thresholds you will need to exceed to receive a Lyft 1099-K since Lyft does not issue a 1099-K for every driver.
You will receive this form if you meet the following:
- You completed at least 200 rides during the tax year AND
- You received at least $20,000 in ride payments from passengers (business income).
Note: If you live in Vermont, Massachusetts, or Virginia you would receive a 1099-K if you earned $600 in ride payments regardless of the number rides you provided. If you are in Illinois, you would receive this form if you earned at least $1,000 in ride payments.
Who Will Receive a Lyft 1099-NEC?
If you received at least $600 for activities other than driving during the tax year, you will receive a 1099-NEC. For most Lyft drivers, the “other activities” will normally be bonus payments. This includes both referral bonuses and Streak Bonuses. The 1099-NEC form for 2020 serves the same purpose as the Form 1099-MISC in prior years.
What is the Lyft Annual Summary?
All Lyft drivers have access to the Lyft Annual Summary or the tax information tab. The Annual Summary includes a lot of important tax-related information even though it is not technically a “required tax document”. The annual summary can reduce the need to track individual ride receipts.
The Ride Payments section includes the total amount passengers paid for the rides you provided. This includes:
- Ride payments
- Toll reimbursements
- Cancellation fees
- Lyft’s platform fees
- Third-party fees
The None-Ride Earnings section includes all non-ride earnings. This includes:
- Referral bonuses
- Streak Bonuses
- Ride Challenges
- Earnings guarantees
- Personal power zones
- Manual bonuses
The Expenses section includes all the fees and tolls you paid related to being a Lyft driver. This includes:
- Lyft’s platform fees
- Service fees
- Third-party fees
- Express Pay fees
- Express Drive rental fees
- Wage Garnishments (if applicable)
B Notice – A Tax Document from the IRS Lyft Drivers May Receive
A B-Notice is an IRS notice you will receive if there is an issue with the name or TIN (Taxpayer ID Number) you gave Lyft in a previous year. If you get a B-Notice, it is important to notify Lyft immediately. In most cases, you will receive a B-Notice due to a typo related to the tax information you provided Lyft. Fortunately, the B-Notice provides clear instructions for you to follow related to the correction process.
Normally, you just need to contact Lyft to provide the corrected information so they can submit the corrected information to the Internal Revenue Service. It is essential to do this immediately. If Lyft does not receive the requested information within 15 days, the IRS requires Lyft to withhold 24% of your earnings. This money is sent directly to the IRS. Lyft also does not allow you to use Express Pay or Lyft Direct if there is backup withholding on your account.
What Taxes Do You Pay as a Lyft Driver?
As a Lyft driver there are two types of taxes you are responsible for on your tax return as a business owner. They are Self-Employment taxes and Income taxes.
Self-Employment (Independent Contractor) Taxes
Self-employment taxes are the taxes anyone who is self-employed will pay. As an employee, you pay half of Social Security and Medicare taxes. Since ridesharing drivers are considered self-employed, you pay all of the self-employment income taxes because you are both the employer and employee. Use a self-employed tax calculator to see how much you'll owe in taxes.
Similar to last year, the self-employment tax is 15.3% on the first $137,700 of net income. Net income is your gross income/gross earnings after allowable expenses are deducted. This is why tracking your expenses is essential.
As an independent contractor, you still have to pay your regular income taxes. The self-employment taxes do not cover this. The amount you pay depends on the amount of income you generate during the year from all income sources. If you are a full-time employee then your income taxes are withheld from your paycheck but since you are a Lyft independent contractor, these taxes are not withheld from your pay. Common tax advice is to set aside 25-30% of your income during the year so you can be sure that you can cover any income taxes at the end of the year.
Handle Your Quarterly Tax Payments
Whether you have to pay your taxes every four quarters or once a year depends on how much you make. If you are expecting to owe the IRS $1000 or more in taxes, then you have to pay estimated quarterly income taxes four times a year.
The estimated tax payment due dates are:
- 1st Quarter - April 15th
- 2nd Quarter - June 15th
- 3rd Quarter - September 15th
- 4th Quarter - January 15th
*Dates are subject to change due to COVID.
Estimate your quarterly tax payments and send them in before the due dates to avoid any penalty.
What Tax Deductions are Available for Lyft Drivers and What Documentation Do You Need to Take Advantage of Them?
As a rideshare independent contractor there are several valuable tax deductions you can use to reduce your tax bill based on your business expenses. The Lyft Annual Summary (sometimes referred to as the Driver Dashboard) provides a majority of the information you need related to tax deductible expenses but there are additional steps you can take to maximize your tax deductions on the Schedule C. Here are a list of tax deductions for Lyft or Uber drivers.
The most obvious Schedule C deduction for Lyft drivers is the mileage deduction. While Lyft does provide mileage rate information in the Annual Summary, this will only include miles driven while waiting for a trip, en-route to a rider, and the actual trips. To maximize your business expenses, it is best to use a mileage tracker app. This will allow you to track and deduct your miles for business-related travel such as picking up supplies, getting gas, parking fee, or mileage driven after dropping off a passenger.
Expenses Tied to Improved Passenger Experiences
As a Lyft driver, the appearance of your vehicle and the enjoyability of the ride is critical. Common tax deductible expenses that fall into this category include but are not limited to:
- Going to the car wash
- Providing snack for passengers
- Providing a phone charger
- Having a first aid kit in the vehicle
Miscellaneous but Essential Expenses
There are a variety of miscellaneous but essential expenses that you can use to reduce your tax liability. For example, if you purchase a roadside assistance plan, such as AAA, you can deduct a percentage of your annual membership based on the percentage of miles driven for business purposes. The same is true for your cell phone. You can either deduction a portion of your cell phone bill or have a separate cell phone used just for business purposes. If you have any questions about handling your tax preparation, you should consult with a tax professional. Check out our Lyft tips article for advice on how to make the most money on the app.