All of these tax forms make your head spin. Worse, Dashers have to file like we're business owners, which equals more forms and more confusion. To top it off, there's so much bad advice out there on Facebook, Reddit and other places. Where do you begin and how do you find the answers?
This is why this series on Doordash taxes was created. We started with an overview of how Doordash taxes work, as well as for other gig economy apps like Grubhub, Doordash, Uber Eats, Instacart, and even Uber and Lyft.
The problem with overviews is that they're just that. It's a big picture look. I wanted to go deeper. That's why we took it further with a five part series of FAQ articles. The idea is to drill a bit deeper, get into specifics.
In this particular FAQ, we dive into many of the common questions related to filing the taxes themselves. The only part of the filing that we don't get as much into is the Doordash Schedule C: That form was worth an article of its own.
Here's something you must understand before going further:
This is not tax advice.
I'm not a tax professional. I'm just another Dasher who's delivered full time for Doordash, Uber Eats, Grubhub, Postmates, and a handful of smaller gig companies.
But the thing is, I wasn't finding tax professionals going into detail about how Doordash taxes work. So I decided to dive into the many questions I see being asked out there. If I can dig in and make sense of the answers to questions, then I figure I can put them out there in a way that hopefully makes taxes a bit less complicated and a little less intimidating.
Answers are based on research, digging into the IRS site, accounting sites and even asking accountants directly for how things work.
But here's the really important part: If you have specific questions related to your tax situation, you really should seek out a tax professional. I hope this information is put together in a way that helps, but if you find this overwhelming, get someone who knows taxes, especially someone who knows how taxes work for gig economy work.
These are a lot of questions. I recommend starting first with our overview of Doordash taxes, or watching this video. Then utilize the FAQ pages to find details to your specific questions.
You can also check out our series of tax guide articles. They cover a lot of the same stuff but in slightly different ways.
This particular series focuses especially on Doordash. However, this pretty much applies to any contractor based delivery gig such as Uber Eats, Grubhub, Instacart, Postmates, Shipt and others.
Ultimately, this is about providing information and education. Again: this is not tax advice. If you need advice, get a tax pro. It's worth it.
The Big Picture: looking at the the overall process of figuring out your tax return..
This part of the series focuses on the filing part of your taxes. We'll look at answers about the different parts of the tax form.
We won't get into a lot of specifics related to general income taxes. That's not the purpose here. Instead, we're looking at how our independent contractor earnings impact taxes. The questions will be broken up in five groups:
- Filing in general.
- Part 1 of filing: Adding up your income, including W-2, Doordash earnings, and other income
- 2: Reducing taxable income with adjustments and deductions
- 3: Calculating your tax bill
- 4: Figuring out what was paid, what is due or what the refund will be.
That's the process in a nutshell. There's a lot more details of course. We'll touch on the questions that help figure out those details.
The frequently asked questions, and answers, about filing taxes as a Doordash independent contractor.
Below are the questions and answers. If you'd like to scroll through the questions, you can jump down to our glossary of questions below.
What's the best way to do your Doordash taxes? Free software, paid software, a tax pro?
If you can at all find it in your budget for a tax pro, it's worth it. Especially if you feel really overwhelmed by this tax stuff. There's so much you can miss if you don't know what to look for. I'm not a fan of tax prep chains, usually you get someone who's trained to use their software. Get someone who lives and breathes this stuff. They'll help you keep your taxes at their lowest.
There's a rule I've noticed when looking into taxes: The less you spend on preparing your taxes, the more likely you'll pay too much. This is especially true if you're not real sure how taxes work.
Does free tax preparation software work with filing Doordash income and expenses?
Many of the free programs don't. There are some that do. Just understand you get what you pay for.
Look for whether the software can do Schedule C forms. That's critical. If it can't, don't even try to use it. You're almost guaranteed to miss some major deductions and pay higher taxes than you should.
Unless you really know your income taxes, avoid the free programs. I've walked through many free and cheap programs and they usually aren't that easy to use. I found that it was often too easy to skip over really important things that keep your taxes down. It's almost impossible to maximize deductions with them unless you really know what to look for.
Where do I enter the miles and expenses for my delivery work?
If you're having trouble finding where to put all that, you're either using the wrong version of the tax program or you're using a cheap one that isn't good at guiding you.
Your Doordash income and expenses go on a form called Schedule C. If the program you're using isn't guiding you to that form, get a different program.
Can I use 1040-EZ or 1040-A when reporting my Doordash earnings?
Do I include my Doordash 1099 in my W2 information?
No. W2 information is for employment. You were not an employee with Doordash. Your 1099 needs to be added to your Schedule C, not your W-2's.
Do I attach my Doordash 1099 to my 1040 form (or from Uber Eats, Grubhub, Instacart, Lyft, etc.?
No. You do not send a copy of your 1099's with your taxes. None of your individual 1099 information actually goes onto your actual tax form. Some tax prep programs ask for the details, but all they do is add up your 1099's and put that total on your Schedule C.
If you received a 1099, Doordash or whoever sent it to you has sent a copy to the IRS. That means Uncle Sam knows you made the money (in case you were thinking of not filing).
Where do my Doordash and independent contractor earnings go on the tax form?
The money you received for your delivery or self employment work is added up and put on line 1 on Schedule C. Your expenses go there as well. It's the profit, or what's left over after expenses that goes onto your 1040 form.
What's the difference between business expenses and tax deductions?
This is one of the biggest misunderstandings for independent contractors. Your Doordash Business expenses are very different than tax deductions. Your miles or car expenses are expenses, not deductions. The same is true with other expenses.
Your business expenses are listed on Schedule C. They are not tax deductions. They go in different parts of the tax process. It seems a bit counter intuitive, but your business expenses are actually entered during the income part of the tax process.
What if I have other questions about 1099's and Doordash Income?
You can start by looking through our 13 frequently asked questions on Doordash Taxes, 1099's and Income. If your question isn't in there, please contact me. If it looks like something other people might ask, I can research it and see if I can add it to the FAQ on income.
Where do I put my miles and expenses?
Your miles and expenses will be entered on the same Schedule C that you list your income. Schedule C is titled Profit and Loss for Business. You do NOT put your expenses down as itemized deductions.
If the tax program you are using does not have an easy way to get to Schedule C, you either have the wrong version or you should get a program that is easier to use. Better yet, get a tax pro.
Why can't I find a place to enter my miles or expenses on Schedule A?
This is because you do not use Schedule A or itemized deductions to claim those things. Your business expenses are claimed on Schedule C. In fact, the Tax Cuts and Jobs Act of 2017 eliminated the ability to claim miles for employees. Learn more with our FAQ on Doordash miles and car expenses.
I only Dash part time and don't have enough expenses to Itemize. Am I out of luck?
No. Itemized and Standard deductions have nothing to do with claiming your expenses. Because expenses are claimed on Schedule C, that means you can take the Standard Deduction and still claim your business expenses.
Are there other deductions for Dashers and self-employed contractors that don't require itemizing?
- Certain self-employed health insurance premiums
- Some specific self-employed retirement savings contributions
- A qualified business income (QBI) deduction
- A deduction for 1/2 of your self employment tax.
The health insurance, retirement, and QBI deductions only reduce your taxable income for income taxes, they do not reduce self employment tax.
What is the Qualified Business Income deduction?
Independent contractors for Doordash, Uber Eats, Grubhub, Instacart and other gig companies can usually take 20% off their taxable income (for income tax purposes). In other words you can reduce your total income by 1/5 of your profit from Schedule C.
Why don't most tax deductions reduce Self Employment Tax?
Self-employment tax is our version of FICA/Medicare/Social Security. Those taxes are withheld from employees based on every dollar earned. Tax deductions don't reduce FICA taxes for employees, so it's fair that they don't reduce self-employment taxes for us.
What's the difference between tax deductions and tax credits?
Deductions and credits are also very different. Tax deductions reduce your taxable income. That means that they don't reduce taxes by the same amount. A tax credit is treated like a payment. That comes at a later part of the tax process.
How are Self-Employment Tax and Income Tax calculated differently?
Self-Employment tax is a flat rate tax of 15.3% of your business profit. That tax is calculated on a form called Schedule SE and added to the tax bill later. Income tax is a progressive tax. There are many deductions applied before you calculate tax. Then your tax rate varies depending on how much you make.
Is it possible to have a profit and not owe Self Employment tax?
Yes. According to Line 4c on Schedule C, if your self-employment tax is less than $400, you do not have to file Schedule SE. Doing the reverse math, that's a bit more than $2800 in profit before you cross that threshold. I feel bad for the person whose Self Employment tax is $401.
If my business operated at a loss, does that lower my taxable income?
Yes. Taxable income is calculated on total income. A loss on your business is counted as a negative. For example, if you made $40,000 in other income and lost $10,000 in your business, your total taxable income is $30,000.
If my business loss is greater than my other income, does that mean I get a refund?
No. It only means you have $0 taxable income. A refund isn't created by having negative taxable income. Refunds are calculated differently as listed below. You can get an estimate of how your profit or loss from your business will impact your income tax bill by visiting our Doordash Tax Calculator.
Why do I even have self employment tax as a Dasher or independent contractor with Grubhub, Uber Eats etc.?
While it seems unfair, it isn't. Self-employment tax is our version of Social Security and Medicare withholding. Those things are taken out each week from an employee's paycheck. Doordash and others withhold nothing from us. As a result, we have to calculate that tax using our Schedule C and Schedule SE and submit it with our 1040 tax form.
How are tax credits different from deductions?
A tax deduction reduces your taxable income. A tax credit acts like a tax payment. It reduces your tax bill (or in some cases increases your tax credit).
Here's an example: Your taxable income was $5,000. You would have $500 income tax at the 10% tax bracket. You find a $500 tax deduction. That means your taxable income is $4,500, and your tax bill is now $450. By comparison, if it were a $500 tax CREDIT, it would reduce the tax bill itself by $500. The $500 tax deduction only reduced taxes by $50, where the $500 tax credit reduced taxes by $500.
What's the difference between refundable credits and non refundable credits?
Some tax credits are designed only to reduce your total income tax bill. They are not meant to create a refund such as if you never had any withholding or payments. Those are called non refundable credits. Some others like the earned income credit, part of the child tax credit and a couple of others act completely like you had paid money in. Those will create a refund for you even if the total credit is higher than what you paid in. They are called refundable credits.
It's important to note that nonrefundable tax credits are only applied to your income tax, not to your self employment tax. Refundable credits are added after your self employment tax, so they can be used to pay down part of that tax.
Is it possible to get a refund if Doordash or other independent contractor work are my only income?
There are two ways you can get a refund. One is if you made estimated tax payments through the year and those add up to more than what you owe. The other is if you are eligible for any of the refundable tax credits.
Why would my refund go down when I add my miles and expenses to my Schedule C?
This usually happens when someone is eligible for the Earned Income Credit, which is a refundable tax credit for low income workers. If your mileage allowance and expenses were greater than your income as a Dasher or other independent contractor work, that means you technically didn't make any money. You're not eligible for EIC if you didn't have any income. When expenses created a loss, that may have wiped out the earned income credit.
Am I in trouble if I owe a lot of money when I file?
You will have to pay the money, but that in itself doesn't mean you're in trouble. If the tax bill is high enough, you might have some penalties and interest added on. For that reason it's better to send in estimated payments through the year. Either way, you can either make the payment when you file or make a payment plan.
Am I better off waiting to file if I owe money?
No. You can get in a lot more trouble for not filing than you can for owing money. You'll also have more penalties and interest if you delay filing. You're better off filing and working out a payment plan than putting it off.
Can I file an extension on my Doordash taxes?
You can file an extension which gives you until October 15 to submit your tax return. However, an extension does not allow you to wait until October to pay. You're required to estimate what you will owe and submit that when you file your extension.
Can't the self-employed skip social security taxes like employees could for part of 2020?
No. Employees were never allowed to skip social security taxes. They had the option to have them deferred during the last four months of 2020. In other words, social security wasn't withheld for that time but they will have to make it up over time.
However, self-employed individuals can elect to defer payment of their 2020 self employment tax. What this means is that you can get one to two years extra to pay a portion of your self employment taxes, usually a bit less than a third. Just like with employees, it's only a deferral in payment, but you still have to pay the amount.
When will I get my refund for my Doordash taxes?
The IRS says they issue more than 9 out of 10 refunds in less than 21 days. A lot of things can slow that down. Filing by paper instead of online, certain types of refunds and other things.
For the 2020 tax year, the IRS may be delayed in processing your refund. There are a lot of factors involved. The IRS was tasked with getting out the latest round of stimulus checks, and that took a lot of resources. They also have been busy verifying information for SBA pandemic programs like the PPP and EIDL targeted grants.
You can learn more about the status of your refund by visiting the IRS's Where's My Refund page.
Will I be audited as a Doordash contractor (or with any other gig work)?
An audit is always a possibility. The chances of an audit go higher with more income. That's usually good news for a lot of us in the gig economy.
Self employed people do have a higher audit risk than employees. That's because it's easier to under report income or over report expenses. Usually if an audit happens it's because something you report is inconsistent with your business type. On your Schedule C you list your business code. Large expenses in categories that are uncommon for gig delivery drivers could trip a flag with the IRS computers where they say hey, we might want to take a look at this.
If you are being truthful and claiming only what you should be claiming, your risk of an audit goes way down.
Here are the questions we'll ask:
Filing in General
- What's the best way to do your Doordash taxes? Free software, paid software, a tax pro?
- Does free tax preparation software work with filing Doordash income and expenses?
- Where do I enter the miles and expenses for my delivery work?#faq-question-1616991169506
- Can I use 1040-EZ or 1040-A when reporting my Doordash earnings?
Adding up income (W2's, Doordash earnings, other income)
- Do I include my Doordash 1099 in my W-2 information?
- Do I attach my Doordash 1099 to my 1040 form (or from Uber Eats, Grubhub, Instacart, Lyft, etc.?
- Where do my Doordash and independent contractor earnings go on the tax form?
- What's the difference between business expenses and tax deductions?
- What if I have other questions about 1099's and Doordash Income?
Reducing taxable income with adjustments and deductions
- Where do I put my miles and expenses?
- Why can't I find a place to enter my miles or expenses on Schedule A?
- I only Dash part time and don't have enough expenses to Itemize. Am I out of luck?
- Are there other deductions for Dashers and self-employed contractors that don't require itemizing?
- What is the Qualified Business Income deduction?
- Why don't most tax deductions reduce Self Employment Tax?
- What's the difference between tax deductions and tax credits?
Calculating the Doordash tax bill
- How are Self-Employment Tax and Income Tax calculated differently?
- Is it possible to have a profit and not owe Self Employment tax?
- If my business operated at a loss, does that lower my taxable income?
- If my business loss is greater than my other income, does that mean I get a refund?
- Why do I even have self employment tax as a Dasher or independent contractor with Grubhub, Uber Eats etc.?
Applying payments and credits, paying in or getting a refund.
- How are tax credits different from deductions?
- What's the difference between refundable credits and non refundable credits?
- Is it possible to get a refund if Doordash or other independent contractor work are my only income?
- Why would my refund go down when I add my miles and expenses to my Schedule C?
- Am I in trouble if I owe a lot of money when I file?
- Am I better off waiting to file if I owe money?
- Can I file an extension on my Doordash taxes?
- Can't the self-employed skip social security taxes like employees could for part of 2020?
- When will I get my refund for my Doordash taxes?
- Will I be audited as a Doordash contractor (or with any other gig work)?
For more information on different parts of filing Doordash taxes:
You can look at our series called the Delivery Driver's Tax Guide. That series was written in a more explanatory manner that walked through various aspects of taxes for independent contractors. You can also scroll down immediately below here to see our list of articles in this FAQ series.