While Doordash and other delivery gigs are a great way to bring in some extra cash, at some point, reality hits.
It's not enough that taxes are even more complicated when you're a self-employed independent contractor. You realize that you're on your own. No one's withholding taxes from your Doordash earnings for you.
To top it all off, you can't just ask, “how much will I owe?” Well, you could, but since everyone's situation is different, you'll never get a good answer (but you will get a lot of terrible answers if you ask on Facebook or Reddit, etc.)
So what do you do?
It's true. Taxes are tricky, to put it mildly. It's impossible for anyone to help you know exactly what to expect in only a single article. This is why we have an entire series of articles on how taxes work for Dashers. We have a list of all the articles in the Doordash taxes series here.
This part of the series will discuss how to estimate your taxes. We'll walk through the things to consider and then provide an actual calculator where you can plug in your numbers. We'll talk about:
About this article
I won't try to tell you how much you will owe. There are too many moving pieces in your tax picture for me to do that. The idea here is to get a feel for how much your Doordash income impacts your overall tax return.
This is not tax advice and should not be taken as such. The purpose is to educate and help you understand how taxes work. You should seek a tax professional if you need direct advice related to your situation.
In fact, that's my only real advice in this article: Get a tax professional. It's too easy to miss the things that can make a huge difference for you. Good tax professionals understand how it works for self-employed people and 1099 contract workers. You'll find it's worth the extra money.
Finally, this article focuses on taxes for Dashers in the United States. We do not attempt to cover laws in other countries or for local or state income taxes. Get help from your tax professional for state and local taxes in your area.
How to calculate your Doordash tax impact
We'll talk about the basic steps you can take to identify the tax impact from your Doordash (and other gig economy) earnings. I may say this a few times, but we're not trying to figure out your total taxes, as there are too many variables to cover in one article.
Instead, we want to determine how your earnings will impact your tax return. How much more will you pay, or how much less will your refund be, because of what you made with the food delivery service and other gigs like Uber Eats, Instacart, etc.?
There are six steps I want to suggest:
- Understand three important facts about Doordash taxes
- Estimate your business profit
- Calculate self-employment tax
- Determine your income tax bracket
- Calculate your income tax impact.
- Add your self-employment tax to the income tax impact to get the total tax impact.
Step 1. Understand three important facts about Doordash taxes
Your first step is to make sure you know these things going forward. We cover these in much more detail in other articles in this series. However, the remaining steps make more sense when you understand these.
This is good news.
Technically, we are small business owners. Dashers are self-employed, meaning you provide delivery services as a business and not as Doordash employees.
A business's income is its profits, or what's left over after expenses. That means you don't pay taxes on the net income you received from Doordash pay and tips. That part is your gross income. You can claim your Dashing miles and Doordash business expenses regardless of whether you itemize deductions.
2. There are actually two different Federal taxes you must pay.
We don't only have to worry about our Federal income taxes. Dashers must also self-employment taxes.
Calculating the self-employment tax impact is actually pretty simple once you've figured out your profits. It's a straight 15.3% on every dollar you earn. Self-employment tax covers your Social Security and Medicare taxes. There are no tax deductions, tiers, or tax brackets. The only real exception is that the Social Security part of your taxes stops once you earn more than $147,000 (2022 tax year).
The taxes work differently. Self-Employment taxes are based only on your business profit. However, your profit is added to other total income and factored in with all your deductions, dependents, tax credits, filing status, and other tax factors to determine your income tax.
3. These things impact your tax bill – the part BEFORE payments and credits are applied.
If I'm repeating myself from earlier, it's worth doing so. The thing is, your other factors are what they are, regardless of your Doordash income, expenses, and profit. That's why we can't adequately cover your entire income tax situation.
What we CAN do is get a feel for how much more your taxes will be (or how much less you'll get as a refund) based on your business profits.
Step 2: Estimating business profit
Quickly calculate how much you made and how much you spent on your business.
When I do this, such as when trying to determine how much to save for taxes, I only deduct business mileage. This is because my other expenses pale in comparison.
Here's how it goes:
- Add all income from all gig economy sources (Doordash and other platforms)
- Subtract the standard mileage amount (58.5 cents per mile for the first half of 2022, 62.5 cents for the second half)
- Optional: Subtract other expenses (hot bags, cell phone accessories, the business portion of phone bills, etc.)
Those steps give you your business profit. That, not your gross pay from Doordash, is your taxable income as an independent contractor.
At tax time, self-employed individuals all do this on IRS form Schedule C: Profit or Loss from Business. On that form, you add income, then list expenses and car expenses. We talk in more detail here about how Dashers fill out their Schedule C.
Step 3: Calculate Self-Employment Tax
This one is pretty simple: Multiply business profit by 14.3%.
That's not a typo. The self-employment tax rate is 15.3%. However, IRS form Schedule SE (which is used to calculate self-employment tax) makes an adjustment to allow you to write off half of your self-employment tax. That adjustment means your self-employment tax is .143055 of your profit. We just simplified it to 14.3%
There are two exceptions:
- You won't owe self-employment tax if the taxable profit is less than $400.
- If the taxable profit is more than $147,000 (2022 tax year), the full self-employment tax rate is capped at $147,000. Any income over $147,000 is taxed at 2.9% (adjusted to 2.7%).
Notice this about your self-employment tax: Your personal tax deductions (standard or itemized) have no impact. That's why for many contractors, self-employment tax is much higher than their income tax.
Step 4: Determine your income tax bracket
The income tax rate (percentage) increases as your income grows. The starting rate is 10%, then grows to 12%, 22%, 24%, and higher.
This chart shows how the tax brackets work.
In my experience, the best way to determine how much your independent contractor income will impact your income taxes is:
- Add up all other income such as W2 wages, interest, and other types.
- Subtract your standard deduction ($12,950 for single filers and $25,900 for joint returns) to determine initial taxable income.
- Multiply your business income by .735 and add that total amount to your initial taxable income.
- Look up the tax bracket (percentage) that fits that final total.
We multiply profits by .735 because there are usually two special adjustments you can take when you're self-employed. These adjustments are only applied to your business income.
- A 20% deduction for Qualified Business Income (QBI)
- 7.65% to cover half your self-employment tax
Let's look at the example of a married person with $45,000 additional income and $15,000 delivery driver profits:
- We start with the $40,000
- Subtract $25,900 to get $14,100.
- Multiply the $15,000 self-employment income by .735 to get $11,025.
- $11,025 plus $14,100 is $25,035 taxable income. That income falls within the 12% tax bracket.
Step 5: Calculate your income tax impact.
Start with the total you came up with when multiplying your net profit by .735, then multiply that by your tax rate.
Our hypothetical Dasher had $15,000 in self-employment income, with 73.5% of that equaling $11,025. Take that by the 12% income tax rate, the tax impact is $1,323.
The actual tax impact may be lower. That's because of how tax brackets work, as the tax rate is progressive. For the 2022 tax year, a married person pays 10% income tax on the first $20,550, then 12% on the next $63,000. If you move into a higher tax bracket, that higher rate only applies to income over and above the threshold.
Our hypothetical Doordash driver would actually have about a $200 lower income tax impact part of their profits are taxed at 10% and the remainder at 12%. I prefer to calculate the higher amount as there are fewer steps, and it doesn't hurt to overestimate your tax impact.
Step 6: Add self-employment tax impact to income tax impact to get your total tax impact.
Using these calculations, our hypothetical Dasher with $15,000 profits would have $2,145 in self-employment tax and $1,323 in additional income taxes. Add those together to get a total of $3,468 tax impact.
In other words, because of their delivery income, their tax burden will be about $3,500 higher than it would be without that income. That may mean they have to pay that much more. If they made a lot of tax payments, withholding, paid quarterly taxes, or have tax credits, it could mean they get $3,500 less in refunds.
Why do we keep talking about tax impact?
The bottom line is your tax situation is unique. It's probably quite different than last year, especially if this was the first year you would pay taxes on Doordash or other gig economy income. Income taxes are complicated enough, with so many moving pieces, that it's impossible to create a simple tax calculator.
Instead of trying to figure out how much money you'll owe, we decided it makes more sense to help you determine how taxes will be different because of your self-employment.
As a result, our goal here is to ask, “how much more will you pay because of Doordash and other gigs?”
If you would have had to pay $500 on tax day based on your other income, but now you have to pay $2,500 after accounting for your Doordash income, tax impact is $2,000. If you normally would have a $3,000 tax refund, a tax impact of $2,000 means you now only get $1,000 back.
We didn't want to dig into all the weeds that go with personal income taxes and all the tax forms. Therefore, we chose to focus on tax income. This lets us zero in on your business income and understand how that will impact your overall tax picture.
This article in our Doordash tax series does go into more detail about the Income tax process for Dashers.
The Doordash tax calculator
You can click here to access the tax impact calculator. You'll be prompted to enter how much you made, how much you think you'll owe, how you'll file, and some places to enter extra information.
Remember, this is not a guaranteed number. This is an estimate to get you an idea. It depends a lot on information you provide, and there are tons of factors that can make an impact in many different directions.
And finally, I'll repeat, this is about tax impact. How much higher is your tax liability going to be because of your self-employment? It's a tool to help you plan, but not a guaranteed number.
Additional Resources for Doordash (and other gig app) Taxes
You can always start direct from the horse's mouth. The IRS has a great resource, providing tax information for sole proprietors in their Gig Economy Tax Center.
There's a lot about how taxes work for Doordash drivers. Each aspect has a lot of detail. This is why we decided not to settle on simply an overview article, and instead put together an entire series. Below, we have a summary of other articles in this series.