Does Doordash take out taxes for you? That's a common question. Sometimes it's a scary question when you've been making money and now you're wondering, am I going to have problems on tax day?
Does Doordash withhold taxes for you? They do not. You are on your own.
Now what? Are you in trouble now? Are you going to have a huge tax bill because of this?
If you're reading this and you've been asking that question, you're on the right track to avoiding tax problems. It tells me you're not in denial. Not completely anyway.
We'll look at what tax withholding is all about with Doordash. Then we'll walk you through some steps you can take now that you know that taxes are not being taken out of your Doordash paycheck.
Read on and we'll cover:
- Understanding why taxes are withheld for employees but not for contractors
- Why Doordash doesn't take taxes out of your Dasher pay
- Six steps you can take to avoid a tax panic come tax time.
Before we dive in, we'll jump to the bottom line. Doordash drivers are not employees. Independent contractors for delivery services like Uber Eats, Doordash, Grubhub and others contract with these platforms as businesses, not as employees.
When you run a business, you are on your own for taking taxes out. But don't worry, we'll talk about what you can do.
Understand how Tax Withholding Works
Understand this: Even though Doordash does not withhold taxes, we still have to pay taxes. Being an independent contractor does not mean you don't pay taxes.
It only means that they're not taken out of your check like they are when you are an employee.
Tax withholding is a form of pre-payment on your tax bill.
You file your tax return next year for the money you earn this calendar year. Technically, that is when the tax bill is due, usually about April 15
However, Uncle Sam wants most of that money paid before the end of the year. In fact, if you end up owing more than $1,000 by the time you file your taxes, you could end up with penalties and interest.
That's true whether you are employed or self employed.
To make sure the money is paid in, employees have money taken out of their check each month based on what it's estimated that you'll owe.
Money is taken out for Social Security and Medicare. That money comes out whether you make a little or a lot because those taxes are based on every dollar you earn, regardless of dependents and tax deductions. These are pay-as-you-go, with no forms that you have to file. You just get paid.
And then depending on your dependents, exemptions and all the stuff you fill out in a W4, money gets taken out for federal, state and local taxes and sent in.
In a way it's like Uncle Sam is putting all that money in savings for you.
Except they get to use that money. So maybe it's more like an interest free loan for the government. Or you can just call it a pre-payment for your tax bill.
Withholding and tax day
I mentioned that technically the tax bill is due the next year. As I write this, it's 2020. Unless the government changes things around like they did this year, on April 15 next year your taxes for this year are due. (Update: They did. Now it's May 15, 2021).
You sit down, you figure out what you made. Then you sit down and figure out what your tax bill is. And then you pay the bill.
If you had to pay it all at once, that could become quite a shock. That's part of why they take the money out early.
So now, essentially what's happening when you figure out your taxes is this: You figure out your tax bill. You add up what you already paid for that bill, and add in whatever credits you might get to those payments.
If the total of payments (your withholding) and credits is less than the tax bill, you owe money. If the payments and credits end up being more than the tax bill. you get a refund.
We've gotten so used to that system that we're often not even aware of our taxes. We don't notice the money coming out of our pockets because it never got to our pockets in the first place.
And even on tax day, we usually don't pay much attention to how much tax we are actually paying. All we care about is, how much was our refund or how much do we have to pay in?
Why do employees even have the money withheld in the first place?
There was a time they didn't. Everyone just had to pay it all in the next year. There were a couple of reasons the government started having employers take the money out earlier.
1943 is about when withholding became a permanent thing. World War II was happening and it was expensive. This was a time that the government still needed to actually HAVE the money to be able to spend it.
The thing is, if no one had to pay taxes until the next year, Uncle Sam had to wait until the next year.
They finally figured out that if they have the money sent in ahead of time, they can use it earlier. They don't have to go in as much debt if they can get the tax money earlier.
Let's face it. On the whole, we're not good with money.
We're not good at saving up for things that we know are going to happen. If the money isn't taken out ahead of time for taxes, a lot of folks are unable to come up with the money at tax time.
That means that the government has to put more effort into collection. The IRS is already overwhelmed as it is, think what a mess it would be otherwise.
Having money withheld out of paychecks makes sure that Uncle Sam is more likely to get his share of the money.
So why does Doordash NOT withhold our taxes?
You would think it would make sense.
Eventually, the government may step in and force some way for Doordash and other food delivery apps to take money out for you. With more and more people joining the gig economy, it's a possibility.
However, it's just that it's not all that easy.
That's because as Doordash contractors (or with any other gig economy companies) we are technically taxed like a business. We're taxed on profits, not the money we are paid. That's what makes it complicated.
If you and I both received $10,000 from Doordash, that doesn't mean we have the same taxable income. I could have $8,000 taxable income and you could have zero.
Why such a difference? Because my business expenses could be a lot lower. This is especially true when you consider the 57.5¢ per mile (for 2020) mileage deduction. If I'm driving only 3500 miles for that $10,000, and you're driving 18,000 miles, my taxable income is closer to $8k and yours is at zero.
So how is Doordash or anyone to know what to deduct?
And that's why we're on our own.
So where does that leave us?
It's on you.
You have to make sure you don't get yourself in trouble when it comes to your taxes.
This isn't a delivery job. It's a delivery business. You may not think it is, but you get taxed like it is. Therefore, this whole tax thing goes with the territory when you're a business owner. You're completely responsible for your own taxes.
Because if you don't, you're in trouble.
How do you stay out of trouble when Doordash does not withhold taxes?
Here's the thing: Even when you're self employed, the tax filing process is about the same.
You sit down. You figure out what you earned. Then you figure out your tax bill. If your payments and credits are more than your tax bill, you get a refund. If they're less, you pay in.
The only difference really is, you are the one in charge of what's taken out early. If you do it right, you'll be okay. If not… April 15 may not be a pleasant day.
Here are some steps you can take to stay out of trouble.
Step 1: Get help.
Don't try to do this yourself.
More to the point: If you have to ask whether Doordash is withholding taxes, chances are you probably aren't familiar with taxes and self employment. You may not have realized you WERE self employed.
That's not a place you want to be if you're trying to do this on your own.
Get some help understanding this. I can't recommend enough, find a good tax expert to help you with your taxes. They'll save you a lot more than what you'll pay them. Sit down with them to get an idea what you need to do to prepare for tax season.
Step 2: Educate yourself
Even if you're not at the point where you understand taxes, it doesn't mean you can't be.
Try and get a good understanding of how taxes work for independent contractors. You can start with our Tax Guide. It's a complete guide with a series of in depth articles on just about everything you could ask about taxes when you contract with food delivery companies.
You can also check out this video on taxes for independent contractors in the delivery side of the gig economy
We've created a whole series of TAX FAQ's especially related to Doordash taxes.
Get to know how taxes work. Understand how self-employment tax works (it's your version of Social Security and Medicare). Learn how things like how car expenses compare to using the standard mileage rate. Know how your 1099-NEC form that reports your Doordash income is used with form Schedule C, all to keep your taxes down.
You don't have to make yourself a tax professional. But the best way to prepare yourself is get to know how things work.
Step 3: Keep Records
Here's a starter on your understanding taxes: Your tax liability is based on your business profit. That's the money left over after your expenses. That's not the same as the money that Doordash pays you. That money is known as your gross earnings.
Why is that an important thing?
It means that you can lower your taxable income if you track your expenses. That's because your business related expenses are handled differently. You calculate your business profit by adding your gross income (the money you receive in your business) and subtracting deductible expenses.
And then you pay your tax based on what's left over.
The easiest way to keep your taxes down is to keep track of all those expenses. That means you lower taxable income, leading to lower taxes.
Track your miles. You can read this article to learn more about how to do that. This is important because you can reduce your income by a standard mileage deduction (56 cents a mle in 2021, 58.5 in 2022).
Track your expenses. This article helps with seven rules to make bookkeeping easier.
For help with tracking you might try one of these (I do get paid if you purchase one of these):
Check out Hurdlr, our choice for the best overall mileage and expense tracking app.
Get it in the Android PlayStore
Get it in the App Store
Step 4: Save money as you go
Get a separate bank account. Something where you won't touch the money very easily.
Every week, before you touch a penny that you received from Doordash (or any other food delivery app) take money out for your taxes. Put that money in the bank.
Don't touch it.
How much do you take out? If you are using programs like Hurdlr or Quickbooks Self Employed, they give you some estimates on what to save. Or you can check out this article that walks through how to calculate what to save.
Step 5. Send it in.
Can I make a confession?
I've robbed my tax fund before.
I had to scramble to make it up. Don't be me.
The IRS has a quarterly schedule where you can send in estimated payments. Once you send it in, it's impossible for you to make my mistake. Also remember that thing I said earlier – the IRS wants most your tax money by the end of the year.
It's not as difficult as some make it out to be. Don't freak out about people calling them quarterly taxes. All it is is you making pre-payments on your taxes. You simply fill out a form that asks you who you are and how much you're sending in.
If you will owe money, this is a good way to avoid additional fees, late fees, penalties and interest.
You can read more about sending payments in here.
Step 6. Get Help
Just in case step 1 didn't get through.
I suppose step 2 is a form of step 1. You can get help by educating yourself, by finding resources like this site. Or maybe you get help through apps like Hurdlr.
But seriously, folks…. you gotta understand this: Taxes for self employed people can be expensive. If you make several thousand through these gigs you could be looking at thousands in taxes.
It's worth it to pay an expert to help you wade through it.
Does Doordash take out taxes for you? You know the answer to that now. It's a good thing you're asking the question. Because now you can take the steps to stay out of trouble.
- Get help. Find a tax professional who can walk you through your deductions, expenses, and how to do taxes. It could be the best investment you make for your delivery business.
- Educate yourself. We have a lot of resources on this site to help you understand how taxes work for Dashers.
- Track your miles and expenses. Business expenses reduce your taxable income. However, you need to have a record. Find a good system or get a good tracking app.
- Save money as you go. There is a reason that money gets taken out of a paycheck for withholding. It's so you aren't stuck owing a lot of money at tax time. You can do the same thing. Every week, set aside money as your way of taking your own taxes out of your own pay.
- Send the money in each quarter. Don't be mistaken. You don't have to file quarterly taxes. But it is a good practice to send a payment in each quarter out of the money you've saved.
- Get Help. See step number 1.
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