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Should I Form an LLC or S-Corp to Drive for Uber?
If you are a rideshare driver with a company like Uber or Lyft, you are (by default) a self-employed, independent contractor. In fact, you are operating your own business as a sole proprietor. If your ridesharing gig is only a few hours a week for supplemental income, you probably need not think much more about it. Simply report your earnings on your individual tax returns.
But, if you are driving significant hours, want to make it your main or sole source of income, or want to make it one of many services you provide as part of a full-blown business enterprise, then you may want to consider formalizing your business by setting up an LLC or S-Corp to reduce personal and tax liabilities.
It’s always a good idea to seek advice from a lawyer or a certified accountant in deciding what type of company to set up. But we can, at least, get you started thinking about what might work best for you.
LLC versus S-Corp
Both an LLC and an S-corp can protect a rideshare-driving sole proprietor’s personal assets from business creditors. There can also be tax benefits to both, depending on your earnings. If you expect to owe at least $1,000 in taxes, you will have to pay quarterly estimated taxes under either structure.
A Limited Liability Company (LLC) is a business entity with the same pass-through taxation as a sole proprietorship but with liability protection like a corporation. Like a sole proprietor, LLC owners report profits and losses on their personal income tax returns. An LLC’s biggest benefit to rideshare drivers is protection of personal assets if someone sues over your business activities. Note that this protection does not extend to your own personal or negligent wrongdoing, like drunk driving.
The S corporation (S-corp) is a tax status rather than a type of business entity, and an LLC can elect it. It also has pass-through taxation, so it avoids corporate income tax. Its biggest advantage for a driver is the tax savings when earnings are significant or when you operate a fleet and employ other drivers. Instead of paying self-employment tax (Social Security and Medicare) on all of the company’s profit, the S-corp owner is paid a “reasonable” salary and takes the remaining profit as distributions. Payroll taxes apply to the salary, but not to the distributions.
Example: Self-employment tax is 15.3%: 12.4% for Social Security on net earnings up to $184,500 (the 2026 limit), plus 2.9% for Medicare on all earnings. It is calculated on 92.35% of your net profit.
Say your company has a net income of $100,000. As a sole proprietor or LLC, you would pay self-employment tax on $92,350, for roughly $14,130 ($92,350 x .153). As an S-corp, you could pay yourself a reasonable salary of $70,000 and take the remaining $30,000 as a distribution.
You would pay payroll taxes on only the $70,000, about $10,710 ($70,000 x .153), a savings of roughly $3,420 before the added costs of payroll and tax filings. Your income tax is a separate calculation.
Note that the IRS scrutinizes what salary is considered “reasonable” given your industry, so don’t underestimate it.
The biggest downside to the S-corp is the cost and effort of forming and maintaining it, including corporate record-keeping, payroll, and a separate, more complicated tax return. These can be time-consuming and expensive and should be weighed against the potential tax savings.
If you create a business entity for your rideshare income, make sure you replace your Social Security number (SSN) with your Employer Identification Number (EIN) as your tax ID in the driver app. This ensures the earnings are recorded for your business instead of you personally.
So, which one to choose?
Most experts will tell you that the LLC is the preferred set-up for a full-time, self-employed rideshare driver because it is simple but has the added benefit of liability protection. In determining whether to choose the S-corp tax status, the question becomes whether potential tax savings is worth the trade-off of having to manage a more complicated business arrangement and complex tax returns. This may happen when income levels significantly surpass what a driver’s otherwise reasonable salary would be. If profits are significantly greater than your reasonable salary, the S-corp status may save you money. Either way, to get started on your formation, a service like Rocket Lawyer can help you through the process.
Claire Terrebonne is a licensed attorney in the State of Missouri with 11 years of experience. Her experience includes complex commercial and intellectual property litigation, small business development and dispute resolution, and child welfare law and policy.
