Rideshare driving is one of the most popular industries today. It’s a convenient way for many people to make a living, all while dictating their own schedules. Rideshare drivers are self-employed individuals, like other workers in the gig economy, and therefore must pay their own taxes.
While rideshare services like Lyft and Uber provide tax forms, drivers may not always know how to file and pay taxes—especially when first starting out as a driver. They also may not know that they can qualify for certain deductions that can lower their tax burden. Here’s what rideshare drivers should know about paying taxes.
Are Lyft and Uber drivers supposed to pay their own taxes?
Lyft and Uber drivers are considered independent contractors. This means that Lyft and Uber won’t withhold your taxes, so you’ll pay your own taxes.
As tax season arrives, knowing which tax forms you’ll receive from Lyft and Uber is essential. Lyft and Uber offer forms to simplify the tax process for their rideshare drivers.
1099 Forms for Rideshare Drivers
If you’re a rideshare driver for Lyft, you can expect an annual summary and up to two 1099 forms:
- An annual summary that provides your earnings, expenses, total online miles, and total rides
- Not all drivers will see a 1099 form on Lyft’s website
- If you cannot access 1099 forms on Lyft, you can use your annual summary to file taxes
You may also receive 1099 forms, either a 1099-K or 1099-NEC.
- Drivers that have completed at least 200 rides and earned at least $20,000 in ride payments from passengers in a year will receive Form 1099-K
- For drivers in Massachusetts, Vermont, and Virginia, you’ll get form 1099-K if you’ve earned at least $600 in ride payments.
- For drivers in Illinois, you’ll get form 1099-K if you’ve earned at least $1,000 in ride payments.
You may also receive form 1099-NEC if you’ve received at least $600 from activities other than driving, such as bonuses. You may receive both 1099 forms with Lyft depending on your earnings.
If you’re a rideshare driver for Uber, you can expect the following tax forms:
- Tax Summary
You’ll receive form 1099-K for Uber if you’ve earned more than $20,000 and if you’ve provided at least 200 deliveries or rides in the last year. There are states with lower reporting thresholds, so you may receive this form if you’ve earned less than $20,000.
You’ll receive form 1099-NEC from Uber if you’re a driver who received $600 or more, but it isn’t a replacement for form 1099-MISC. You’ll receive form 1099-MISC if you’ve received at least $600 in miscellaneous income. This income can be from awards, legal settlements, or prizes.
You can see the tax summary, which will show your expenses, fees, tax, and total online miles. Uber’s tax summary also provides an overview of expenses that may be tax-deductible.
What taxes do rideshare drivers pay?
Whether you’re a rideshare driver for Lyft or Uber, you’ll have two taxes to pay: income taxes and self-employment taxes.
The first of the two taxes for rideshare drivers is the self-employment tax. Rideshare drivers will pay self-employment taxes if you’ve earned $400 or more. The self-employment tax is at a rate of 15.3% of your income, which pays for Medicare and Social Security.
The second of the taxes for rideshare drivers is income tax. Lyft and Uber drivers will also need to pay income taxes. The tax owed will vary according to a tax rate that ranges based on overall income.
How do Uber and Lyft drivers file taxes?
To file taxes, Lyft and Uber drivers will need additional forms, on top of the 1099 forms from previous steps. You’ll need these forms to file taxes:
- Form 1040 (to file income and pay income tax)
- Schedule 1 (to report ride-share profits)
- Schedule C (to report profit and losses)
- Schedule SE (for self-employment tax)
1. Calculate gross income from driving
The first step to file taxes with Lyft and Uber is to calculate your gross income. For rideshare drivers, gross income is income before deductions and taxes are taken out.
You’ll use Form 1040 and Schedule C to calculate your gross income. You’ll also list this amount of both forms.
2. Track and deduct expenses
Second, you’ll track and deduct your expenses. Both Lyft and Uber make tracking your expenses easy, which may help you qualify for rideshare tax deductions.
If you use Lyft, you can find your expense information in your annual summary in your Dashboard. If you use Uber, you’ll find your expense information in the tax summary section of the app.
The IRS offers tax deductions for rideshare drivers for business and personal use. If you’re using your car for only business use, you can deduct its entire cost of ownership and operation. If you’re using your vehicle for business and personal purposes, you can only deduct the business use cost.
You may receive deductions for operating expenses and vehicle expenses. Operating expenses are costs you pay to run your rideshare business. Some examples of operating expenses for rideshare drivers are:
- Accessories (car cables, car chargers, and mounts)
- Mileage tracking software
- Phone costs and phone plan costs (deduct portion used for only driving)
- Refreshments and snacks for passengers
Vehicle expenses are expenses you’ll pay for using your car. To claim these deductions, you can choose to use either the standard mileage rate or the actual expenses method with exceptions:
- If it’s your first year using your car for business use, the IRS requires you to use the standard mileage rate.
- After your first year, you can choose from actual expenses or the standard mileage rate.
- If you’re leasing a car, you’ll use the standard mileage rate for the entire lease period if you choose the standard mileage rate option.
To claim the standard mileage rate, you’ll multiply your business miles driven by the standard rate. For 2021, the standard rate is 56 cents per mile driven for business use.
To claim a deductible using the actual expenses method, you’ll calculate the costs to operate your car only for business use. You’ll include the following costs, which you can claim as business miles:
- Depreciation (or lease payments)
- Registration fees
Whether you use actual expenses or the standard mileage rate, you’ll use Schedule C to complete this step. To claim deductions, you’ll also use Form 1040.
3. Calculate net profit or loss
Third, you’ll calculate your net profit or loss. Your profits will include your gross earnings, and your losses will consist of your business expenses.
You’ll use Schedule C to complete this step.
4. Calculate self-employment tax
The last step to file taxes as a rideshare driver is to calculate self-employment tax. This tax consists of Medicare (2.9%) and Social Security (12.4%) for a total tax rate of 15.3%.
- First, you’ll use your net earnings from the previous step.
- Next, you’ll apply 92.35% of your net earnings to self-employment tax.
- Finally, you’ll multiply the result by the 15.3% self-employment tax rate to the amount subject to self-employment tax.
This tax differs from income tax, and you’ll pay this tax as an estimated tax quarterly or by using Schedule SE. As an independent contractor, you may deduct 50% of your self-employment tax from your taxable income.
Contact 1-800Accountant for help with your rideshare taxes
As a rideshare driver, few things are more vital than filing and paying taxes. You’ll want to get your taxes for rideshare driving done correctly with no issues or penalties.
When you need to file your rideshare taxes, be sure to work with the professionals. Contact 1-800Accountant when it’s time for you to file your rideshare taxes.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.