Taxes for Uber Drivers - Facts You Should Know
Ridesharing businesses have grown tremendously within the last decade. Rideshare drivers are responsible for fulfiling their annual tax obligations filing and submitting taxes. Taxes for Uber drivers can be pretty complex and it’s not unusual for many drivers to struggle every year.
However, it doesn’t have to be complicated once you get all facts right.
It is important that you know your tax obligations and take the right steps to preparing for your taxes.
Obligations for Rideshare Drivers
When you drive for Uber, you are an independent contractor, and the company does not take any tax deductions from your earnings. Instead of receiving a W-2 form that the employees get at the end of the year, you will get a Uber 1099 tax form.
As an independent contractor, you have greater control over your tax and the question, “what is the benefit of 1099?” becomes more apparent. As such, if you are know which tax deductions you qualify for, you can apply them to lower your tax bill.
What You Need to Know About Being An Independent Contractor
Uber drivers are regarded as "partners" by Uber, and hence it is on the list of independent contractor jobs. 1099 tax rules apply. Driver services are categorized under 1099-K tax rules, and every other payout, including bonuses and referral fees, are categorized in the 1099-MISC rules. The required Uber driver tax information is available on the driver’s portal in the Uber app or website.
Most of the time, 1099 forms will arrive towards the end of January or before mid-February. Some companies issue 1099 forms with the checks. However, this is not the case with Uber.
While IRS suggests you request if you don't get specific Form 1099s, you ask, if you do, you may end up with two Forms 1099, including the one you requested and the one issued even if you did not receive it.
Paying Tax as an Uber Driver
Uber drivers are non-employees of the company. Because of this, the company does not withhold tax from your earnings but does report the income paid to you.
If you earned more than $600 with Uber, the company would report your earning to your state tax agency and IRS by filling Forms 1099-K or 1099-MISC. This report is critical when paying your taxes as you are required to report this income on your tax return.
Also, you are required to pay the self-employment tax to cater for your Social Security and Medicare as well as the income tax on the net profit made. You can apply tax deduction on the net income tax to cater to your business' expenses.
Like other sole proprietors, Uber drivers are required to report their income if it exceeds $400 per year. If your earnings are less than $400, you are not obligated to report. Reporting your income requires you to file Form 1040 and attach schedule SE, and Schedule C. Make sure you fill these forms out accurately.
What Taxes Do Uber Drivers Have To Pay?
Knowing the taxes you are required to pay makes it easier for you to file and submit your tax obligations. Uber drivers are self-employed, and they pay their personal and business taxes together.
- You are required to declare your income using the personal tax return, Internal Revenue Service Form 1040.
- Since you are only obligated to pay taxes on your business's profits, you should fill the IRS Schedule C.
- List all the expenses for your Uber business in schedule C and pay your tax based on the profits made.
- As a sole proprietor, Uber drivers are supposed to pay the self-employment taxes on net income and the net income tax regardless of whether you are past the retirement age.
- The self-employment tax is paid by Uber drivers on the first $128,400 of their earnings to cater to Medicare and Social Security at 2.9% and 12.4% respectively filed in IRS Form SE.
What Tax Deductions Can I Get as an Uber Driver?
Monitoring your deductibles expenses is especially important for lowering your tax bill. These deductions are made on the total profit to reduce the amount of income you are required to pay tax on.
The deductions that qualify for your Uber business include car expenses (costs of gas, car maintenance, and depreciation) or the mileage deduction. Uber drivers may not deduct meals. You would not qualify for a write-off on your haircut.
While the standard rate of mileage requires fewer hassles when keeping track of your mileage information, make sure to rely on credible mileage trackers or logging systems to get your mileage information right.
Uber drivers can qualify for the following tax deductions:
- The 20% pass-through deduction to reduce your income tax by 20%.
- The cost of extra insurance coverage and interest accumulated on the car loan.
- Miscellaneous expenses on extra services you provided to customers like water.
- Use the home office deduction if you have a home office for managing your business.
- Uber commissions and fees, parking tolls, and transaction costs incurred.
Here is a more detailed list of Uber tax write offs.
When Do Uber Drivers Pay Taxes?
Unlike other employees who are required to pay their taxes annually in April, self-employees like Uber drivers are required to pay taxes quarterly. Uber drivers will pay taxes in quarterly installments due April 15th, June 15th, September 15th, and January 15th for the four consecutive installments.
If you do not receive any income before any quarterly tax due, you skip the tax payment for that quarter.
It is worth noting that the prepaid tax payment for self-employed people, including Uber drivers, is based on income tax estimates. What happens if you miss your quarterly tax payments? The Internal Revenue Service imposes tax interests and penalties if you do not pay up to 90% of your total due tax.
To avoid paying any tax interests or penalties, you must pay at least 90% of the tax you owe in the current year, 100%, or 110% of the tax you paid in the previous year if you are a high-income taxpayer.
The Bottom Line For Uber Drivers
If you want to quickly understand tax for ride-sharing drivers or other gig economy apps, take a look at the following tips:
- Know your tax obligations and all the taxes you are expected to pay.
- If you earn more than $600 per year, Uber is required by the Internal Revenue Service (IRS) to fill the 1099-MISC or 1099-K form or both. This information will be shared with your state tax agency.
- Get ready to pay 90% or 110% of your estimated tax every quarter.
- Maintain a comprehensive list of all the business costs while driving for Uber (use a 1099 expense tracker to help!).
- Know your possible tax deductions and apply them to save some money.
- Accurately file and submit your taxes using the proper tax forms.