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.
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 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.
Uber drivers are regarded as "partners" by Uber, and hence 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.
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.
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.
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.
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:
Here is a more detailed list of Uber tax write offs.
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.
If you want to quickly understand tax for Uber drivers, take a look at the following tips:
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