Can You Get a Tax Refund with Doordash? How the Income Tax Process Works for Dashers

The income tax process for Doordash drivers is not much different than it is for ordinary employee taxes. Sometimes we make taxes a bigger mystery than they have to be.

The difference for Dashers isn't really in the income tax process. Instead, it's how your Doordash income is determined. Your actual income as an independent contractor is your profits (what's left over after expenses). We discuss that in more detail in other parts of this series. 

In this article, we dive into what happens next. We'll discuss the four processes involved in determining your income tax. When you understand those processes, income tax becomes less mysterious. This post looks at:

• The Doordash tax series (and what else is in it)
• Step 1: Adding up your income
• Step 2: Reducing taxable income (adjustments and deductions)
• Step 3: Determining your tax bill
• Step 4: Payments, credits, and whether you get a tax refund
• Frequently asked questions about income taxes for Dashers

The Doordash tax series (and what else is in it)

It's impossible to cover how taxes work in one article adequately. For that reason, we put together a series that goes deeper into different aspects of taxes. We start with an overview on how does Doordash work with taxes, then go into more detail on various tax topics. 

We'll link to other articles in the series as we go along. You can also see a complete list of our tax series articles. 

The purpose here is to examine the entire income tax process and how your profits impact it as an independent contractor. This is about income taxes for Dashers in the United States. We do not get into state or local income taxes or taxes in other countries.

Do not take anything in this article or this series as tax advice. We only intend to educate and inform, explaining how taxes work. You should seek a tax professional to guide you with questions and advice about your personal circumstances and taxes.

Step 1: Adding Income

As an independent contractor, you use the same 1040 tax form that you use as an employee. 

The first part of that form is where you add up your income. Your total W2 wages go on line 1, with several other income types on the following lines. 

Here's where your Doordash earnings come in:

First, that the money from the 1099 Doordash sends you (and add that to income from other delivery services iff applicable). You'll enter that on IRS form Schedule C: Profit or Loss from Business. On the same form, you'll subtract your Doordash driver tax deductions. Those expenses include your Doordash mileage tax deduction.

You can read more about how to fill out Schedule C as a Dasher. Your profits are added to other income and listed on line 8 of your 1040. Add that to all other income to determine total income.

Step 2: Reducing income with tax deductions and adjustments.

This part of the process is where you subtract tax deductions and income adjustments to determine taxable income. It's also where you decide whether to itemize your tax deductions (mortgage, charitable donations, healthcare costs, etc.) or claim the standard tax deduction.

Dashers need to understand that this is NOT where you claim your mileage and other expenses. You claim those expenses on Schedule C. 

Why is this so important? Because you can claim your expenses as a Dasher regardless of whether you itemize your deductions. Too many contractors mistakenly believe they can't take those deductions if they use the standard tax deduction. 

There are several special deductions that self-employed can claim as income adjustments. This means you can take these even with the standard deduction. They include:

• 20% Qualified Business Income deduction for Dashers and other independent contractors
• Self-Employment tax deduction
• Contributions to self-employed retirement savings plans
• Some Self-employed health insurance plans

These deductions and income adjustments are subtracted from your total income to determine taxable income. 

Step 3: Calculate your income tax bill.

Understand that this is not where you determine what to pay or if you get a refund. That part comes next. This is where you figure out what you would have to pay if you didn't have any withholding, payments, or tax credits.

You calculate income tax as a percentage of taxable income. It's a progressive tiered system. Your tax rate (tax bracket) increases as your income gets higher. 

The calculations can be complex, so comparing your income to the IRS tax tables is easier.

Say you're single with $24,000 in taxable income. Compare that to the screenshot of the tax table above (from the 2021 tax year); your tax bill is $2,684.

The tax brackets can be confusing. The top tax percentage isn't applied to your entire income but in steps. The first several dollars are taxed at 10%, and only the income exceeding the next threshold is taxed at a higher rate.

For example, the 12% tax bracket for a single filer starts at $12,276 (2022). If they earned $20,000, only the last $7,725 is taxed at 12%. 

There's another piece of the puzzle for Dashers who made a profit. Once you've determined your income tax bill, you need to add other taxes to that bill. 

Doordash does not withhold Social Security and Medicare taxes for you. You must pay those taxes in the form of self-employment taxes, which are 15.3% of your profits. You can read more about Self-employment tax Doordash Dashers and other contractors have to pay

Add your self-employment tax and any other applicable taxes to your income tax bill to get your total tax bill.

Step 4: Finding out if you pay in or get a refund

Now that you know what you owe in taxes, it's time to determine if the bill has already been paid. More importantly, you find out if you get a refund or not.

This is where payments and tax credits are applied to your bill, including:

• Paycheck withholding
• Estimated quarterly payments
• Non-refundable tax credits
• Refundable tax credits.

The difference between tax credits and tax deductions

Step 3 involves subtracting tax deductions from your total income. In step 4, you apply tax credits to the bill.

Credits and deductions are very different from one another. Tax deductions reduce taxable income and happen before calculating the tax bill.

Tax credits act like payments against your tax bill AFTER calculating it.

If you're in the 10% tax bracket, a $500 tax deduction might reduce your tax bill by $50. However, a $500 tax credit reduces the tax bill by the entire $500.

Refundable and non-refundable tax credits.

Some tax credits are only applied to your tax bill if there's an outstanding balance. You will not receive a refund if your non-refundable tax credits add up to more than your income tax bill. This is why they're called non-refundable.

Some common non-refundable tax credits include:

• Electric vehicle and alternative energy credits
• Childcare credits
• Certain education credits
• Adoption credits
• The saver's credit

Refundable tax credits act like cash payments to your tax bill. You will get a refund if your total refundable credits exceed your tax bill. Some of those credits include:

• Earned income credit
• American Opportunity credits for education
• Part of the child tax credit

Many of these credits have income restrictions. Consult with your tax professional to learn more about if you qualify for any of these.

Determining the final balance

Step 4 of the tax process starts with your income tax bill. First, it subtracts non-refundable credits up to the outstanding balance from that bill. The new tax balance after this step is never less than $0.

Second, additional taxes (including self-employment tax) are added to the tax balance. The reason it's added here is to prevent non-refundable tax credits from being applied to your self-employment taxes. An employee can not reduce their FICA taxes using these tax credits, and this step prevents the self-employed from having an unfair advantage. 

Finally, subtract refundable credits and previous tax payments (and withholding) from the outstanding balance. If payments and refundable credits exceed the balance, you get a refund for the difference. Otherwise, you must pay the outstanding balance.

Frequently asked questions about the income tax process for Doordash delivery drivers.