Tax Rules for Ridesharing Drivers

Taxes on Uber and Lyft Income: How and When To Pay

Serious young man drives car with window halfway down
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Making some extra money by driving your car can be a nice gig, but you might want to consider tax issues if you're working with Uber, Lyft, Via, or any similar rideshare network. You'll pay income tax on the money earned by simply giving someone a ride in your car. But you can also deduct work-related expenses.

Key Takeaways

  • Ridesharing drivers are usually considered to be independent contractors, not employees. This means more tax requirements but it can result in more tax breaks, too.
  • Drivers must pay the self-employment tax if they're independent contractors: the full Social Security and Medicare taxes that they would otherwise share with their employers.
  • Ridesharing drivers must remit quarterly estimated tax payments over the course of the year because no employer is withholding and remitting taxes from their earnings.
  • Drivers can claim tax deductions for work-related mileage and for other business expenses they incur.

Independent Contractor or Employee?

Your work status affects how you calculate and pay your taxes, so the Internal Revenue Service (IRS) wants to know whether you're an independent contractor or an employee. You are most likely, but not always, an independent contractor when you work for a ridesharing company.

The IRS looks at several factors when deciding on your work status. Three factors, in particular, can help you determine whether you're an employee or an independent contractor.

Note

Check with a tax professional if you're unsure about your status. Making a mistake can create a big headache, particularly if you claim that you're an employee so that you can skip paying estimated taxes and you're actually an independent contractor. You can also find more information at the IRS Small Business and Self-Employed Tax Center.

Who Controls Your Work?

You're probably an employee if the company controls or has the right to control what you do, how you do it, and when you work. You're likely an employee if a company tells you exactly when to drive, where to drive, and whom to pick up.

Who Owns Your Car?

Employers control the business aspects of the job on behalf of their employees. You're probably an employee if the company provides you with equipment, such as a company car to drive.

Do You Receive Benefits?

You're most likely an employee if you've entered into a written contract or receive employee benefits, such as a pension plan, insurance, or vacation pay.

Note

California voters approved Proposition 22 in November 2020, defining app-based drivers, such as those who work for Lyft and Uber, as independent contractors. But a California Superior Court judge ruled that the law was unconstitutional on August 20, 2021. An Uber spokesperson has indicated that the company will appeal.

The Tax Impact

You'll pay FICA taxes at the rate of 15.3% of your net earnings if you're an independent contractor: 12.4% for Social Security and 2.9% for Medicare. This is referred to as the self-employment tax and it's in addition to income tax. You would only pay half of these Social Security and Medicare taxes if you were an employee. Your employer would pay the other half.

You're also responsible for sending quarterly estimated taxes to the IRS if you make your living through independent contract work. Your employer would handle this if you were an employee, withholding taxes from each of your paychecks and submitting the money to the IRS on your behalf.

Here's a brief rundown of how self-employment income is taxed differently from regular wages:

  Employees Independent Contractors
How income is taxed Gross wages, minus pre-tax benefits are subject to income tax, Social Security, and Medicare taxes Gross receipts, minus allowable business deductions, are subject to income tax and self-employment tax
Federal income tax Yes Yes
Social Security tax Yes (pay half) Yes (pay entire tax)
Medicare tax Yes (pay half) Yes (pay entire tax)
State income tax Yes (where applicable) Yes (where applicable)
Tax documents received at the end of the year Form W-2 Form 1099-NEC and/or Form 1099-K
Where reported on the tax return Form 1040, Line 1 Form 1040, Schedule C, and Schedule 1
Documents you fill out when starting to work Forms I-9 and W-4 Form W-9
How taxes are paid Through payroll withholding Through quarterly estimated tax payments
How work-related expenses are deducted No longer deductible until at least 2025 under the Tax Cuts and Jobs Act Deductible as business expenses on Schedule C

Specific Tax Tips

You're eligible for certain expense deductions related to your rideshare business if you're an independent contractor. Keep detailed records and documentation, including a mileage log to calculate the percentage of miles you drive for work purposes. You can download a mobile app to keep track of mileage. You should also maintain records of your work-related expenses, including car repairs, gas, maps, and supplies.

You can deduct the standard mileage rate, which is 58.5 cents per mile for the tax year 2022 (up from 56 cents per mile in 2021). Or you can deduct a percentage of your actual expenses equal to the percentage of time you drive for income-earning purposes. The IRS periodically changes the mileage rate to keep pace with inflation. You can use whichever method produces more savings for you. You can't do both.

Note

You can deduct tolls and parking separately from, and in addition to, the standard mileage rate deduction.

Include miles you log when driving people around, plus other business-related driving. This might include a trip to the bank to make a business-related deposit or to a retail establishment to purchase supplies. The IRS can disallow the deduction if you don't keep a mileage log.

Other work-related expenses, such as drinks and snacks you buy for riders, are also deductible. A portion of your phone bill can be considered a business expense if your cellphone bill usage increases due to driving, or if you have to buy a higher-cost plan to accommodate the increased data usage.

Note

It's important to keep track of your personal driving in your vehicle because those miles aren't eligible for a tax deduction. You can deduct 80% of your auto expenses if you drove 50,000 miles last year and 40,000 of those were for work. Likewise, you can only apply the standard mileage rate to those 40,000 miles.

Forms 1099-NEC and 1099-K

Uber, Lyft, and other ridesharing services will send you a Form 1099-NEC and/or a Form 1099-K after year's end. These are effectively the equivalent of Form W-2 for employees, although they won't show any withholdings. An independent contractor has no taxes withheld from their income.

You should receive these forms by late January so you can report your earnings for the year on your tax return. Use them to complete Schedule C, "Profit or Loss From Business." All your income and deductible expenses should be entered on this form, then your resulting taxable income is transferred to your Form 1040 tax return.

You'll only receive a Form 1099-NEC if you were paid more than $600 for the year. But the IRS still expects you to report the income on your tax return if you earn less. Form 1099-K reports any income you earn while driving when you have a paying passenger in the car. Form 1099-NEC covers other types of payments you may have received.

Paying Estimated Taxes

You must pay taxes directly to the IRS as an independent contractor because you don't have an employer withholding income taxes from these earnings on your behalf. The IRS requires individuals (including partners, sole proprietors, and S corporation shareholders) to make quarterly estimated tax payments if they expect to owe at least $1,000 in taxes over the course of the tax year. Calculate the amount of each payment based on your earnings for that quarterly time period.

You'll have to pay estimated taxes on your driving income, even if you also hold down a separate, regular job with an employer that withholds taxes from your pay and issues you a Form W-2. But you would only pay estimated taxes on your independent contractor earnings.

Another option is to increase your withholdings from your pay from your regular job to cover both your employment and independent contractor income. Check with a tax professional to find out whether this makes sense for you. This typically works best if you don't earn a great deal as an independent contractor.

Frequently Asked Questions (FAQs)

How much should rideshare drivers set aside for taxes?

The exact amount of taxes you'll owe depends on many factors, including your filing status, other sources of income you might have, and tax credits and deductions you can claim. But most experts recommend that self-employed rideshare drivers set aside 25% to 30% of their earnings to cover taxes.

Can I write off my car payment as a business deduction?

Almost anything you pay for that's necessary to conduct your rideshare business can be written off as a deduction. This may include car payments, insurance, and DMV registration fees. But you'll have to account for only the percentage used for business reasons if you also use your car for personal driving. Claim this portion of your total car-related expenses as a deduction on Schedule C.

Do I need to save my gas receipts to claim them as a business expense?

Receipts can be a useful way to prove how much you spent on gas in the course of your rideshare driving. But you can also use other metrics, such as miles traveled. The IRS will require a sworn statement attesting to accurate reporting.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Understanding Employee vs. Contractor Designation."

  2. JDSupra. "California, Ride-Hailing Companies Collide In Court: Implications And Next Steps."

  3. IRS. "Self-Employment Tax (Social Security and Medicare Taxes)."

  4. IRS. "Standard Mileage Rates."

  5. IRS. "Publication 535 (2021), Business Expenses."

  6. IRS. "Publication 463 Travel, Gift, and Car Expenses."

  7. IRS. "Form 1099 NEC & Independent Contractors."

  8. IRS. "Estimated Taxes."

  9. Bench Accounting. "The Uber & Lyft Driver's Guide to Taxes."

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