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2022 Tax Tips for Uber and Lyft Drivers
Many people are turning to rideshare companies such as Uber or Lyft as a great way to earn extra money. Of course, rideshare driving can also be a full-time gig for motivated drivers.
One of the reasons why this work is so attractive is that you don’t work for the rideshare company. Instead, you are your boss, and you are subcontracting out services to the rideshare company. Because you are considered an independent contractor, no taxes are taken out of your payouts.
The bad news, though, is that you can be surprised by a big tax bill if you don’t make estimated tax payments. Talk with a tax advisor, who can help you make estimated tax payments during the year. Let’s explore how to minimize the tax burden that rideshare drivers often face.
A great way to lower your tax bill is to get every deduction and credit that you are legally entitled to as a small business owner. There are many deductions and credits that drivers are often unaware of.
As an independent contractor, you will most likely complete the following tax forms:
| Form Name | Purpose |
|---|---|
|
Schedule C, Profit or Loss from Business |
This form summarizes all of your earnings and
expenses from your business to determine the
taxable profit or loss. |
|
Schedule SE, Self Employment Tax |
This form is used to determine the Social
Security and Medicare tax that you owe the IRS,
based on your profit on Schedule C. Unlike an
employee who receives a paycheck, you are
responsible to pay both the employee and
employer share of this tax, which totals 15.3%. |
|
Schedule 1, Additional Income and
Adjustments to Income |
50% of the self-employment tax that you paid
on Schedule SE can be deducted on Form 1040,
Schedule 1. You may also qualify to take the
self-employed health insurance deduction if you
were self-employed and generated a profit in
2022, and you purchase your health insurance
on your own. |
Understanding 3 Tax Reporting Documents
You may receive three different tax reporting documents, and it’s important to understand what they report to you:
Form 1099-K
This form reports your gross earnings from a rideshare company. Uber, for example, refers to the amount as “on-trip gross earnings”. The amount reported is determined by the total dollar amount of payments that were processed, and Form 1099-K does not deduct any expenses. Rideshare drivers deduct expenses on Schedule C.
You’ll receive a 1099-K if you meet these two criteria:
- You earned more than $20,000 in gross earnings for the year, and
- You received payment for at least 200 rides or deliveries during the year
You must report any income earned from driving, even if you don’t receive Form 1099-K. The rideshare company’s tax summary (explained below) will report your earnings.
Form 1099-NEC
Rideshare companies use this form to report bonus and referral fees to you. If you earned $600 or more in fees during 2022, you will receive a 1099-NEC. Keep in mind that 1099-NEC replaced the 1099-MISC form that you may have received in past years.
If you earned less than $600, you must report all bonus and referral fees on your tax return.
Tax Summary
Finally, Uber and Lyft will send you a tax summary, which lists the income reported on the two 1099 forms (if they apply to you), and selected business expenses. Your commissions, fees, tolls, sales tax paid, and other expenses are listed on the tax summary.
Rideshare companies use the data from rideshare trips to report “on-trip mileage”, which is the miles driven with a passenger in the car, or when you made a delivery. You can deduct additional miles, and that topic is explained below.
Filing Your Taxes as a Rideshare Driver
Kenneth W. Boyd is a former Certified Public Accountant (CPA), Auditor, Tax Preparer and College Professor. Boyd brings a wealth of business experience to financial education. He has also authored several books on accounting, including ‘Cost Accounting For Dummies’.
How to Deduct Mileage Expenses
There are two ways to deduct your expenses: actual expenses or the standard mileage deduction. You should calculate mileage expenses using both methods, and use the higher deduction. It’s important to note, however, that once you use the actual expense deduction, you are required to do so in all future years for that particular vehicle.
Below is a broad overview of what is included in each type of deduction:
| ACTUAL EXPENSES | STANDARD MILEAGE | |
|---|---|---|
|
GENERAL DESCRIPTION |
All your actual expenses related to your rideshare income. Examples are:
|
At the beginning of 2022, the Standard Mileage Rate was 58.5 cents per mile for each mile driven related to your rideshare work. The IRS updated that rate to 62.5 cents per mile for the second half of the year. So the rate for 2022 is as follows:
You can also add in tolls and parking to the mileage total. |
|
ADVANTAGE |
All expenses are included. |
Limited recordkeeping, most of which is done by the rideshare company, which tracks most of your mileage expense. |
|
DISADVANTAGE |
Requires a higher level of recordkeeping to keep track of the expenses, and backup documentation for the expenses, in case of a tax audit. |
You may be limiting your business expenses, especially if your vehicle is driven primarily for the rideshare business, and has high insurance and repair expenses during the year. |
|
RULE OF THUMB |
If your vehicle is driven more than 75% for your rideshare business- and has a high amount of insurance and repair expenses during the year- this may be the way to go. |
If recordkeeping is difficult for you, or you drive on a limited basis, this may be the way to go. |
Below are some other expenses which you may be eligible to take. This is just a partial list of the most common expenses, and there may be other expenses which are unique to your situation:
| EXPENSE | DESCRIPTION |
|---|---|
|
GENERAL LIABILITY INSURANCE |
You may want to purchase general liability insurance to insure you in manners that auto insurance will not cover. |
|
LEGAL & PROFESSIONAL FEES |
Income tax preparation, accounting, and attorney fees. |
|
OFFICE EXPENSES |
Office supplies |
|
RENT OR LEASE EXPENSE |
Garage rental to store your vehicle when not in use. |
|
MEALS |
50% of snacks and beverages you provide to your customers. |
|
CELL PHONE |
The business portion of the cell phone expenses. If you use your cell phone 75% for rideshare driving, deduct 75% of the monthly bill as an expense. |
|
RIDESHARE ACCESSORIE |
Window decals, lights and signage that identifies you as a driver for a specific company. |
|
QUALIFIED BUSINESS INCOME DEDUCTION |
In general terms, you may be able to deduct up to 20% of your taxable income related to your rideshare business. This deduction is complicated, and you should consult with a tax advisor. |
Here is additional information on calculating business mileage, and how to deduct health insurance costs:
| EXPENSE | DESCRIPTION |
|---|---|
|
MILEAGE TO/FROM WHERE YOU BEGIN AND END YOUR RIDESHARE DAY |
As mentioned above, your rideshare company will provide a tax summary report, which includes mileage driven when you carried a passenger or made a delivery. This mileage total is your starting point. Next, add miles driven to pick up a passenger, and miles driven to a specific location (to perform more work) after dropping off the passenger. These same rules apply to deliveries. |
|
SELF EMPLOYED HEALTH INSURANCE DEDUCTION |
If you are self employed and purchase health insurance on your own, you may be eligible to take a portion of the health insurance premiums as a deduction against your income. |
Keep organized records
Your business records support the deductions and income on your tax return. Stay on top of the recordkeeping process, and use technology to store records. Keep mileage records and other documents stored on the cloud, and scan all of your receipts for cloud storage. Use these tips to maximize your business deductions, and to lower your tax liability.
This article is for informational purposes only and ‘The Rideshare Guru’ does not make any guarantees to its accuracy as each individual’s tax situation is unique. We recommend that you hire a tax professional if you are uncertain of how to properly file your taxes as a rideshare driver. We may get a referral fee to services or products linked to from this site.
Ken Boyd spent over 15 years working as a Certified Public Accountant (CPA) and has authored several books on accounting, including ‘Cost Accounting For Dummies’. He blogs and provides video content at AccountingAccidentally.com
