Does Grubhub take taxes out for you as a delivery contractor? They do not. The critical thing to remember is that you're an independent contractor, not an employee. You provide services for Grubhub as a business, making you responsible for your own taxes.
If you're not careful, this could leave you in a bind at tax time. What do you do when tax day rolls around and you're unprepared? Where do you come up with the money and stay out of trouble?
We'll talk about what that means for you when Grubhub doesn't take taxes out of your paycheck. Then we'll walk through six steps you can take to protect yourself. We'll discuss the following:
I get how it feels to start making some extra money or even do this as a full-time gig, then suddenly wonder what will happen at tax time. It can be a little unsettling, can't it?
That's why I created this tax series about how taxes work delivering for Grubhub. Taxes don't have to be that mysterious. Understanding the fundamental concepts covered in the article I just linked puts you well ahead of most other Grubhub drivers. We then go into more depth on several topics, like this one. You can see the entire list of articles here.
Understand one thing: This is not tax advice. The purpose of this article and series is to provide information you can use to understand how taxes work. You should find a tax professional familiar with independent contractor taxes for specific advice related to your situation.
Tax withholding and the difference between employees and independent contractors.
You may be accustomed to having taxes taken out of your paycheck as an employee. It might be a bit of a shock to discover that this doesn't happen with your Grubhub pay.
The difference is that as a Grubhub contractor, you're self-employed. When you're the one employing yourself, you get to do the tax withholding.
And, as an independent contractor, your income is still taxable. Where this becomes a huge deal is Social Security and Medicare taxes. We don't usually think about those because even though they're taken out of our paychecks, we never have to file tax forms.
But now we have all of that to take care of.
The reason this all matters is that income and FICA taxes are pay-as-you-go. Taxes aren't due on April 15th; that's only the due date for filing. Your taxes are due as you earn money.
This is why money is taken out of employee paychecks throughout the year. Uncle Sam wants the bill paid by the end of the year. You can owe penalties and interest if you have to pay in more than $1,000 when you file your return.
So why doesn't Grubhub take out taxes for us?
Wouldn't it make sense for the IRS to require companies like Grubhub to withhold a percentage of our earnings?
It has to do with how self-employed individuals calculate taxable income. The money Grubhub and other gigs pay you isn't your taxable income. Instead, your tax basis is your profit or what's left over after expenses.
Some drivers have far more expenses than others. They may take longer trips and can write off more car expenses for their Grubhub deliveries. They may have other business deductions. One driver who gets $15,000 from Grubhub might not have a profit at all, while another owes on nearly the entire amount.
An employer knows your tax basis, as your entire salary is income for tax purposes (especially with FICA taxes, which are not influenced by things like filing status or tax deductions).
By contrast, Grubhub doesn't know your expenses, meaning they don't know your profit. That makes it impossible for them to know what to take out.
That gets complicated further if you provide services for several gig economy platforms.
So, in the end, it's up to us.
How do you stay out of trouble when Grubhub does not withhold taxes?
It starts with knowing what you earned and what your expenses were. You should stay on top of this throughout the year and not wait until tax day to figure it out.
You'll add up your earnings when you file your taxes. Then you'll determine your tax bill and compare that to what you've already paid in. Those payments include paycheck withholding, estimated payments you sent in throughout the year, and tax credits.
Your goal is to ensure you've paid most of that tax bill by the time you file. Here are some steps to help you do that.
Step 1: Get help.
Don't try to do this yourself.
Here's the thing: if you're searching for whether Grubhub takes taxes out of your pay, there's a good chance you're not that familiar with independent contractor taxes.
I wrote this series to help you get more familiar, but the truth is, this is not a good place to be if you're trying to do this all on your own.
If there's any advice I would offer, it's this: Find someone who understands taxes for gig workers and have them walk you through what you need to do. Usually, the most significant tax mistake for Grubhub drivers is they pay more than they should. A good tax pro will help prevent that from happening.
Step 2: Educate yourself
Even if you're not at the point where you understand taxes, it doesn't mean you can't be. You can start with our guide for Grubhub driver taxes. We began with an overview and then created several articles that dug deeper into things like how the Grubhub 1099 works, what you can write off, and how self-employment tax works.
This isn't about turning yourself into a tax expert. However, understanding the basics go a long way toward keeping you on top of things for your Grubhub taxes.
Step 3: Keep Records
I've mentioned a few times already that taxes are based on profits or what's left over after expenses. If you don't know where you spent money or what miles you can deduct for Grubhub deliveries, you'll pay taxes on more than you should.
Tracking your expenses and miles related to your Grubhub work reduces your taxable income. And the important thing is you can claim Grubhub-related expenses regardless of whether you itemize your tax deductions or take the standard deduction.
The best way to do that is to keep records. There's no one way you have to do that. I wrote here about seven things you need to know about keeping records for Grubhub deliveries.
You can use a spreadsheet or a notebook to write everything down. It might be easier to use an app like Hurdlr, whose free version is more than enough to track everything well. While I may get a commission if you use my link and get a paid subscription, the reality is that the free version is more than enough for most Grubhub drivers.
Track your miles when delivering for Grubhub. This is important because you can reduce your income by the standard mileage deduction (62.5 cents a mile for the second half of 2022).
Step 4: Save money as you go
Save money throughout the year for your taxes.
Get a separate tax savings account. You want it to be a different account, so you can't easily access the money.
Every week, before you touch a penny you received from Grubhub (or any other delivery or rideshare app), take money out for your taxes. Put that money in the bank.
Don't touch it.
How much do you take out? Hurdlr has a tax calculator that considers your filing status and other income. Other apps do as well. You can read more on how much to save for Grubhub taxes.
Step 5. Send it in.
The IRS has a quarterly schedule where you can send in estimated payments. Once you send it in, you can't rob your tax fund.
Remember that I said earlier that the IRS wants most of your tax money by the end of the year. This is why they have a quarterly tax payment program.
Some people call it quarterly taxes. It's not that at all. You don't file any taxes or pay anything additional each quarter. The form is “who are you, and what are you sending in?”
Essentially you're estimating your withholding and sending it in each quarter. If you would otherwise owe money, this is an excellent way to avoid additional fees, late fees, penalties, and interest.
Step 6. See Step 1
It really boils down to how comfortable you feel with filing independent contractors.
If any of this still makes your head swim, a tax professional will more than pay for itself. If you're not capturing all of your legal expense deductions, you could pay way more for your Grubhub earnings than you should. A good tax expert will help make sense of all this.
Does Grubhub take out taxes for you? The fact that you're asking the question puts you well ahead of many other contractors. Now that you know the answer to that question, you can prepare yourself and avoid the tax day panic.