If you recently began driving for Uber, whether full-time or just to make some cash for holidays, you need to know about the tax implications of providing ridesharing services. When you are self-employed, as is the case with Uber drivers, your income tax filing requirements are completely different than those for employees. To prevent any unpleasant surprises, such as tax debt, let’s review what changes are in store once you start working for yourself, and discuss your new tax filing process.
Uber drivers are classified as independent contractors providing driver services. At the end of the year, they usually receive Form 1099 instead of a W-2 used for employees. Since Uber drivers are non-employees, Uber doesn’t provide them with typical employee benefits, such as vacation or health insurance. The company also doesn’t withhold taxes from drivers’ paychecks and reports all their earnings on Form 1099.
Usually, Uber drivers get a couple of forms from the company they are driving for: Form 1099-K and Form 1099-MISC. The former will list the total amount received from your passengers and includes the Uber commission along with other fees. Even though the amount in Box 1a of Form 1099-K will be greater than what you actually received in payments, you will only have to pay tax on your actual earnings. Form 1099-MISC is for reporting income from other sources, such as referrals and bonuses not related to driving.
Although Uber sends out both 1099 forms to all drivers, regardless of their earnings, the IRS only requires the issuance of:
By doing so, Uber reminds its drivers to report their earnings from ridesharing and makes the filing process easier.
If you earn at least $400 with Uber rides, you are obligated to report this income to the IRS, regardless of whether you received your 1099 or not. To do so, you will have to file Form 1040 along with Schedule C and Schedule SE.
Many Uber drivers report their income on Schedule C, Profit or Loss from Business, of their 1040 forms along with any business-related expenses. Usually, your tax return doesn’t need to have an actual 1099 form because Uber reports all this information to the IRS directly.
On line 12 of Form 1040, you will have to enter the number you got by subtracting your business expenses from earnings. This number will also go on Schedule SE to calculate your self-employment taxes (Social Security and Medicare). The current Social Security tax rate is 12.4%, and the Medicare rate is 2.9% on the first $128,400 of your wages.
To make tax filing easier for its drivers, Uber even provides a breakdown of the 1099 forms’ totals, which includes various fees (tolls, safe ride fees, and split fare fees) and the amounts paid by passengers for Uber commissions. All of these items could be deducted as a business expense on your Schedule C.
Part of the Uber tax summary is “on-trip” mileage, which drivers can use in their business expense calculations. In addition to the mileage driven with passengers in the vehicle, you can write off other related mileage as long as you kept detailed records. Off-trip mileage can include trips to pick up customers and miles you drove before ride cancellation.
To determine how much of your car usage is business related, you can take the standard mileage deduction by multiplying the deduction rate (54.5 cents/mile as of 2018) by the number of business miles, or you can deduct actual vehicle expenses, such as gas, insurance, registration, maintenance, repairs, depreciation, or lease payments. Make sure to log your business miles and keep receipts if you drive your Uber vehicle for personal purposes as well.
On top of auto expenses, you can also deduct your smartphone expenses. In most cases, you can write off the following:
Since only business expenses are deductible, it might be a good idea to purchase a separate phone and devote it solely to your Uber business. This way, you will be able to deduct all costs associated with the phone.
In addition to car and phone expenses, you might have other costs pertaining to your ridesharing business and thus eligible for tax deduction. Examples of such costs are:
You can also consider deducting a portion of your home exclusively used for administrative tasks for Uber business. The business use percentage of the interest on your car loan is eligible for deduction as well.
All self-employed individuals who expect to owe at least $1,000 in federal taxes must make estimated tax payments four times a year: on April 15, June 15, Sept. 15, and Jan. 15. To avoid the IRS penalties for not paying enough of estimated tax, it’s a good practice to pay at least 90% of your total tax for the year or 100% of the tax you paid the year before, whichever is smaller. If your adjusted gross income is above $150,000, you need to pay 110% of your previous year’s tax.
The switch to self-employment comes with desirable perks, but it requires you to be more disciplined and responsible. As an independent contractor, you are in charge of yourself and your hours. At the same time, it’s your sole responsibility to file your taxes properly and on time. If you’ve never worked for yourself before, consider consulting a tax professional on all the rules and regulations for independent contractors. If you already struggle with tax debt, contact our debt professionals at Solvable. We provide individuals with debt education and debt management resources to help them get out of debt and stay debt-free.