How do 1099 taxes work for Grubhub delivery drivers? Grubhub drivers are self-employed independent contractors, meaning Grubhub taxes are small business taxes. That's both good news and bad news.
The good news is that it's easier to write off your expenses than if you were an employee. The bad news is that you're on your own. You can get in over your head if you aren't prepared.
However, Grubhub taxes don't need to be as mysterious as we often make them out to be. Some basic concepts will help you understand how it all works. We identified nine essential things to understand about how Grubhub taxes work.
Finally, we'll talk about the three most important things you can do to prepare for tax season.
About this article.
The purpose of this article is to explain how taxes work for Grubhub independent contractors. This is not tax advice and should not be taken as such. Instead, it's written to educate and inform, helping you understand these essential tax concepts.
If you want tax advice, you should find a tax professional who understands independent contractor taxes. They can guide you with your individual financial situation.
This is about United States federal taxes, and other nations have different tax regulations. There may be variations with some local and state taxes. Speak to your tax professional about how taxes work for you in your location.
Finally, we're not going to try to cover every detail about Grubhub taxes. That would make this an incredibly long blog post.
However, we know that you will need more detailed information sometimes, and this is where I think we set ourselves apart. We have several articles that go into more depth about various aspects of Grubhub driver taxes. We'll link to those throughout this article and give you a list of relevant articles at the end.
1. Grubhub taxes are small business taxes
Did you know that you're running a business? It may not feel like it, and you may not have planned on that when you signed up for Grubhub.
You became a business owner the moment you signed that independent contractor agreement. As a Grubhub delivery contractor, you provide services as a business, not as an employee. Your relationship with the food delivery service is a business-to-business relationship.
Whether you deliver full-time or this is a side hustle for just a few hours a week, you're running a business at the end of the day.
That means you're self-employed and will pay taxes as a sole proprietor (unless you've created a formal business entity like an LLC). Taxes as a Grubhub contractor are like most small business owners. It's known as pass-through taxation. Your business profits are passed through to your personal income tax return, and you pay taxes on those profits as personal income.
2. We are on our own for your taxes.
You are not an employee when you deliver for Grubhub. Therefore they do not withhold taxes. Grubhub is your customer. As I said earlier, this is a business-to-business relationship, and your payment from Grubhub is simply one business paying another for delivery services rendered.
Think about it this way: You don't withhold social security taxes or income taxes for your mechanic or painter.
As a business owner, it's your responsibility to set aside money for your tax bill. You do your own taxes and withholding. This is a bit of a paradigm shift from being an employee, where everything is taken out for you.
Failure to stay on top of your taxes can get you in a real bind when tax season rolls around.
3. Grubhub driver taxes are based on profits
The money you get from Grubhub is not your income. It's your business revenue.
Your profit, or what's left over after expenses, is your actual income from delivering for Grubhub.
Another of the main differences between taxes as an employee and as an independent contractor or self-employed worker. Taxable income for employees is straightforward: it's the wages that are shown on a W2 form.
There's more involved as a sole proprietor (a self-employed individual). Your business's income is the money you make from Grubhub and the tips from customers. While it's reported on your Grubhub 1099-NEC form, it's NOT the same as personal income.
Instead, you subtract the cost of doing business from that money to determine your profit. You then move your profits over to your tax return as personal income.
4. We reduce taxable Grubhub income by claiming business expenses
This works very differently from claiming tax deductions.
Your business miles and other expenses for Grubhub are not tax deductions. They are business expenses. While that seems like semantics, it's a critical distinction.
Tax deductions are taken in a different part of the income tax process. Depending on whether you take the standard deduction, you may be limited on what you can claim.
Business expenses are claimed during the income part of your tax return. You subtract expenses from business income on form Schedule C and then record the difference as income on your tax return. This all happens before you ever get to the tax deductions.
Here's the critical implication: You can claim business expenses and miles for your Grubhub work even when taking the standard tax deduction. Too many gig workers think they can't do that, and that mistaken belief costs them a more significant tax liability.
So what exactly qualifies as a legitimate business deduction? Here's what the IRS says:
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.Internal Revenue Service Publication 535: Business Expenses
The bottom line is if you need it for your business AND it's ordinary for a Doordash driver, it's a legitimate tax-deductible business expense.
We get into more detail about Grubhub tax deductions and business expense write-offs.
5. Tracking and claiming car expenses is the best way to slash your Grubhub tax bill
Most Grubhub couriers deliver by car. That means they can put a lot of miles on while delivering. With wear and tear, higher maintenance and repair costs, and reduced vehicle value, that can be more costly than you realize.
Because driving IS such a significant expense, writing off your Grubhub car deductions can make a huge difference.
The IRS gives you two ways to claim vehicle expenses. You can either claim the business use percentage of the total cost of driving for Grubhub or take the standard mileage rate. The mileage rate is a flat rate per business mile. In the first half of 2022, the mileage allowance was 58.5 cents per mile and 62.5 cents for the calendar year's second half.
62.5 cents may not seem like much. However, 10,000 reduces your taxable income by $6,250. If you put many hours at all into delivering for Grubhub and other delivery companies, your car deduction can be pretty substantial.
To claim those expenses, you must track the miles you drove. You can do this with third party apps for mileage and expense tracking (like Hurdlr) or keep a written log. You can read more about how to track Grubhub miles and what miles you can track while delivering for Grubhub. We also write about what to do if you forgot to track your Grubhub miles.
Finally, there are a few car-related expenses you can claim even when you take the standard mileage allowance. We talk more here about how a Grubhub food delivery driver can claim portions of their car loan interest, property tax, and parking and tolls.
6. Schedule C is the central form for your Grubhub taxes
Your most important Grubhub tax form is “Schedule C: Profit or Loss From Business.” This is where you claim your expenses.
Here's how it works: Schedule C has an income and an expense section. On the income part, add your Grubhub 1099 and total earnings from other food delivery companies such as Doordash, Instacart, Uber Eats, etc.
The expense section of Schedule C has several expense categories. You will list your total expenses for each category. One of those is line 9, where you put your car expenses (either actual expenses or the standard mileage allowance).
Next, subtract expenses from income to get taxable profits for your business. This profit determines self-employment tax and is added to other personal income for income tax purposes.
In my opinion, Schedule C is much like our version of a W-2 form. Line 31 of Schedule C, not the income on your 1099 forms, is the number you add to your 1040 Federal tax return.
We get into more detail here about how Grubhub drivers fill out form Schedule C.
7. We also have to file and pay self-employment tax (our version of FICA)
Self-employment tax is the part of Grubhub taxes that get most independent contractors in trouble. There are two reasons it creates such a headache:
- We may not realize there is such a thing.
- Self-employment tax is usually much higher than income tax.
This isn't an extra tax just for the self-employed. Instead, it's the self-employed individual's version of Social Security and Medicare taxes. Those FICA taxes are known as employment taxes, which explains the term “self-employment taxes.”
Self-employment taxes are 15.3% of Schedule C profits. You calculate them on IRS Schedule SE and then add those taxes to your income tax bill.
They often catch new contractors off guard because we never have to deal with them as employees. Employers just take the money out of your paycheck without you having to file tax returns. However, with no withholding from Grubhub pay, you have to pay that money yourself.
Self-employment taxes are higher than most income taxes, as they are 15.3% compared to the 10% or 12% tax bracket that many gig workers are in. They're also charged on every dollar of profit and not reduced by tax deductions like income taxes are.
One more thing adds to the sticker shock of self-employment taxes. Employees only have 7.65% taken out of their checks, half of what self-employed individuals pay. It's not that Uncle Sam gets more money, but the employer pays half of the tax. With self-employment income, you must pay both the employer's and employee's portion.
8. Add your Independent Contractor profits to other income to determine your income tax bill.
Grubhub business income impacts our income taxes differently than they do self-employment taxes. Self-employment taxes are more straightforward at 15.3% of your profit.
Income tax is a totally different story. First of all, your profits are just one form of income. You may have W2 wages, interest, investment, retirement, and other income.
Next, several deductions and income adjustments lower income tax while not affecting self-employment tax. There's also whether you file an individual or joint return and other factors.
When it's all said and done, total income minus adjustments and deductions equal taxable income. You jump through many hoops to determine taxable income and then calculate income tax as a percentage.
Even then, it's not that straightforward. Now you deal with tax brackets. The higher your income, the higher the tax percentage. In fact, calculating those percentages isn't that simple.
Your income tax bill is not the same as whether you owe money or have to pay in at tax time. It's a starting point for the next topic.
All of this makes it so that there's no straight answer to what you pay in income taxes with Grubhub. Every tax situation is different.
In another article, we walk through all the steps of filing income tax and discuss how Grubhub income impacts your income tax bill.
9. Income plus self-employment tax, minus payments and credits, determine if you get a refund.
Once you've determined your income tax bill, you can decide if you get a refund.
Your total tax bill is your income tax liability plus your self-employment taxes. When that's all figured out, you see whether you've already paid that bill. There are several ways of applying payments to that bill.
- Federal income tax withholding that was taken out of paychecks
- Estimated quarterly tax payments you sent in during the tax year.
- Refundable and non-refundable tax credits.
The government sees tax credits as a payment against your tax bill. That's very different from tax deductions in that deductions only reduce your taxable income.
Non-refundable credits can only be applied to your income tax bill, not your self-employment tax bill. They're called non-refundable because you cannot get a refund if they exceed your income tax bill.
Refundable credits include Earned Income Credit, a portion of the Child Tax Credits, and a few others. These are like cash payments; you get a refund if the credits are more than your tax bill.
It boils down to this: If your payments and credits add up to more than your tax bill, you get a refund. You have to pay the difference if they don't.
The three best ways to prepare for taxes using this knowledge.
You may have noticed parts of this where you could use a little more information. This is why we link to several different articles below. That allows you to get the details where you need more information without getting lost in those you don't.
I wanted to give you the basics by providing some essential ideas about Grubhub taxes. Understanding these things helps de-mystify gig economy taxes.
Having covered these things, I want to conclude with three important steps you can take to prepare for tax day:
- Know when you need help
- Track your miles and expenses
- Set aside money for tax time.
1. Know when you need help.
If you feel overwhelmed by all this, you should absolutely get a tax pro to help you out. If you don't understand what to look for, what things you can write off, and what tax documents you need, two things could happen:
- You claim things that are not deductible, setting you up for a possible audit
- You don't claim allowable expenses, costing you a significantly larger tax bill.
Flyfin notes that according to the IRS, freelancers overpaid their taxes by an average of $3,019. A tax expert who understands gig economy taxes can help you avoid being one of those who paid too much.
2. Track your expenses and your business mileage
As a business owner, your taxes are determined by profits. Therefore, every recorded expense reduces taxable income.
If you're in the 12% tax bracket, every $100 in expenses reduces your tax bill by $27.30 ($12 in income tax and $15.30 in self-employment tax). $10,000 of deductible expenses reduces taxes by $2,730.
If you drive your car for your deliveries, every mile is a 62.5 cent reduction of taxable income. Each mile you track in the 12% tax bracket reduces taxes by 17 cents. 17 cents isn't much, but multiply that by thousands (or tens of thousands) of miles, which add up to tremendous tax savings.
If you don't record miles and expenses, it's harder to know you can write them off when filing your taxes. The IRS requires documentation of all business expenses and of your mileage. You can learn more about how to record your Grubhub miles here.
It's up to you how you keep track of those things. You can write everything down on a notepad or use a mobile app like Hurdlr. Choose the method that enables you to best capture your costs and miles.
3. Save for tax time
The Grubhub food delivery app isn't holding taxes out for you. That means it's entirely up to you to save tax money from your Grubhub earnings.
This seems intimidating, but it's not that bad. Hurdlr has a tax calculator function that considers your filing status and other income. They look at your income, filing status, other income, business expenses, and miles to estimate what you should set aside.
I use a simpler approach. Each week, I deduct the standard mileage rate from how much money I brought in. Then I save a fourth (25%) of the difference.
You may be more comfortable taking out a more significant percentage or might feel safe with less. Find a formula that works for you and save.
Put that money where you won't touch it. Stick it in a different bank account if you have to. Every quarter, send your Grubhub tax savings to the IRS. Some call it quarterly taxes, though really, all you're doing is sending in estimated payments.
If you do all this, you'll avoid an absolute panic when it's time to file your taxes.
More Grubhub Tax Information
We explain in detail how taxes are determined for Grubhub independent contractors
We examine how income as a Grubhub independent contractor is reported.
Explaining what the 1099-NEC form from Grubhub is, how it's reported, and what you do with it on your taxes.
We discuss how business expenses work as tax deductions for Grubhub delivery drivers and what the IRS says about what you can and can not write off.
How car expenses work for Grubhub drivers, what the IRS says about what you can claim, and how to claim those expenses.
We look at what the IRS requires for mileage tracking, and the best methods you can use to track miles
When you can start tracking miles, when to stop, how to determine whether to track miles, and when the miles you drive for Grubhub are considered a commute.
The IRS allows you to reconstruct a mileage log if you haven't tracked miles for Grubhub and others. We discuss what they require and methods you can do to legally determine how many deductible miles you've driven.
The IRS lets you choose between claiming actual car expenses or the mileage allowance. We examine what actual expenses you can claim and how the actual expense method works for Grubhub delivery drivers.
Grubhub drivers can claim part of their car loan interest and property taxes, and all parking and tolls for delivery trips, even when taking the standard mileage deduction. We discuss how each of these work.
We examine common business expenses, by Schedule C expense category, for Grubhub and other delivery drivers.
An examination of different parts of IRS form Schedule C with tips for how Grubhub contractors can fill it out.
A detailed look at what self-employment tax is for Grubhub drivers, how it is calculated, and why it is the way it is.
We look at how Grubhub drivers can claim a 20% QBI deduction, a self-employment tax deduction, and special self-employed health insurance and retirement adjustments.
Walking through the four steps of the Grubhub income tax process.
Discussing several methods to help you determine how much to save for your Grubhub taxes.
Looking at what quarterly tax payments involve, and when Grubhub and other delivery contractors need to make those payments.