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Uber and Lyft drivers pay taxes not as W-2 employees, but as independent contractors.
Highlights
- Every rideshare driver must pay taxes, unless you made less than $400 from your rideshare activities during the year.
- Uber and Lyft drivers pay self-employment tax, which is typically 15.3% of their net earnings.
- You can deduct certain expenses to reduce your taxable income, which in turn will reduce your tax liability.
Do Uber and Lyft drivers pay taxes?
Uber drivers and Lyft drivers are not considered “employees” by the IRS. Instead, they’re classified as independent contractors, meaning the rideshare services don’t withhold taxes from their payments. Independent contractors also receive a 1099 at year-end rather than a W-2 form.
Whether you drive full-time or as a side-hustle, independent contractors are small business owners in the eyes of the IRS. And you’re required to pay taxes on your ridesharing income.
How to calculate taxes on rideshare earnings
Uber and Lyft drivers actually pay two kinds of taxes when they file their returns: self-employment tax and income tax.
Self-employment taxes
Self-employment taxes are essentially the self-employed version of Social Security and Medicare taxes. If you have more than $400 in income from your ridesharing work, you need to pay self-employment taxes.
For the 2022 tax year, the self-employment tax rate is 15.3% of the first 92.35% of your net earnings from self-employment. The keyword here is net earnings. This means you can deduct business expenses to reduce the amount of tax you’ll owe. We’ll dig into the types of costs you can deduct later.
Income taxes
As an independent contractor, you still have to pay regular income taxes in addition to self-employment taxes. Unlike self-employment taxes, income taxes don’t have a one-size-fits-all rate. The amount you’ll pay depends on the amount and types of other income you have, your filing status, the tax deductions and credits you’re eligible to claim, and your tax bracket.
A good rule of thumb is to set aside 25-30% of your net income to cover self-employment and income taxes.
To learn more about estimating your tax bill, check out How Much Are Taxes for a Small Business?
Do you have to pay taxes on tips?
Tips are considered taxable income by the IRS, so yes, you do pay taxes on any tips you receive. Any tips that your customers have paid through the app will show up on your gross earnings documentation that Uber or Lyft generates.
How to file taxes as an Uber or Lyft driver
Most Uber and Lyft drivers will report the income from their ridesharing work on Schedule C and attach it to their individual tax return, Form 1040.
Step 1: Calculate your gross income from rideshare driving
You may receive two 1099 forms from Uber or Lyft, but not always.
- Form 1099-K. Starting in 2022, you should receive a 1099-K if you generated over $600 in customer payments.
- Form 1099-NEC. If you make more than $600 in non-driving income, such as bonuses, referral fees, and other awards, you may receive a 1099-NEC for this income.
Even if your income from Uber and Lyft doesn’t rise to the level of receiving a 1099 form, you still need to report your income to the IRS. So go into your driver dashboard and download your income details for the year.
These forms will typically report a higher income than what you actually received. This is because it reports the total of what your customers paid before Uber or Lyft takes their fees. These fees are tax deductible as a business expense.
Your gross income from rideshare driving goes on Line 1 in Part I of Schedule C. If you drove for both Uber and Lyft during the year, you don’t need to complete two separate forms. Just add the income from both rideshare companies together and include the total on one schedule.
Step 2: Deduct your rideshare expenses
The tax summary available from Uber or Lyft will include some expenses, but you may have other deductions that aren’t tracked by the rideshare companies. Here’s an overview of some common expenses you can deduct from your business income:
- Mileage. Your summary statement should include all of the miles you drive while waiting for a trip, en-route to a rider, and on trips. If you keep careful records, you can also deduct other business-related miles, such as driving to pick up supplies, or miles driven after you dropped off a passenger. For 2024 tax returns, you can use the standard mileage rate and take a deduction of $0.67 per business mile. Alternatively, you can use the actual expense method, and deduct the business percentage of what you paid for costs like gas, repairs and maintenance, auto insurance, registration fees, and car loan interest or lease payments.
- Uber and Lyft service fees. Your 1099 from the rideshare service will include full payments from customers without deducting Uber or Lyft service fees. Make sure you deduct the fees paid to the platform to ensure you’re not paying taxes on money you never received.
- Parking and tolls. In addition to your mileage, you can also deduct any parking fees related to your work and any tolls that weren’t paid by the passenger.
- Cell phone. If you have a separate phone that you use just for your rideshare driving, you can deduct 100% of the cost of the phone and your monthly data plan. If you use your phone for both work and personal use, you’ll need to split your deduction between business use and personal use.
- Supplies. Many rideshare drivers provide water and snacks as a courtesy to passengers. You may also buy supplies for your car, such as a phone charger, dashboard mounting system for your phone, a first aid kit, and floor mats. You can deduct the cost of these supplies as a business expense.
- Roadside assistance. Did you get a AAA membership or similar roadside assistance plan? You can deduct a percentage of your annual membership fee based on the percentage of miles you drive for business.
- Car washes. Rideshare drivers need to keep their vehicles clean and tidy to get good ratings from passengers. You can deduct a portion of these expenses on your return.
Add up your expenses for the year and enter them on lines 8 – 26 of Part II of Schedule C. If any of your costs don’t fit into the pre-filled categories, you can list them in Part V.
You’ll also need to enter a few questions about your vehicle in Part IV.
Step 3: Calculate your net profit or loss from your rideshare business
On Lines 28 – 31 of Schedule C, follow the directions to calculate your net profit or loss from the business. Then enter the result on Line 3 of Schedule 1.
Step 4: Calculate your self-employment tax
Take the self-employment income you calculated in Step 3 and carry it to Schedule SE to calculate your self-employment tax.
Once you calculate your self-employment tax, enter the result on Line 4 of Schedule 2. You can also take half of your self-employment tax as an above-the-line deduction on Line 14 of Schedule 1.
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If all of this sounds complicated, don’t worry! A reputable tax preparer or software program can complete the necessary tax forms. You just need to provide your income from Uber or Lyft, as well as any applicable expenses.
If you’d rather have someone else take care of all the bookkeeping and taxes for you, check out Bench. We’ll pair you with a dedicated bookkeeper who will take care of your bookkeeping for you, and we’ll get your taxes filed too. Learn more about our small business tax services.
