As a Dasher, you are an independent contractor and not an employee. As a result, Doordash does not take taxes or any other withholding out of your pay.
Because you are providing services for Doordash as a business and not as an employee, you are responsible for withholding and paying your own taxes off of Doordash income.
Where does that leave you? What will this mean for you on tax day? How do you avoid tax trouble if taxes are not taken out of your Doordash paycheck?
We'll look at what tax withholding is all about with Doordash. Then we'll walk you through six steps you can take to make sure you're in a good tax situation at the end of the year.
Read on and we'll cover:
- How tax withholding normally works
- 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: Dashers are not Doordash employees. You are self-employed, meaning you provide delivery services as a business. That's the definition of being an independent contractor.
This is part of a series of articles designed to help you understand the answer to the question, “how do taxes work for Doordash?” You can see the other articles in the series here.
Understand how Tax Withholding Works
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.
Here's another thing you have to consider: Does Doordash pay into Social Security for you? Just like with income tax, they do not. That's covered by self-employment tax, which you are responsible for.
Your total earnings are still taxable. But since you do this as a business, you pay taxes as a business. However, now everything is your responsibility.
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 your taxes pre-paid. 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.
Employees have that pre-payment taken out of their paycheck. This is called withholding.
Money is also taken out of employee paychecks to cover Social Security and Medicare taxes. 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 payroll taxes are pay-as-you-go, with no forms you have to file.
And then, depending on your dependents, exemptions, and all the stuff you fill out in a W4, your employer takes out money for state and federal income taxes.
In a way, it's like Uncle Sam is putting all that money in savings for you.
Except they get to use that money, which makes it more like an interest-free loan for the government. Or you can call it a pre-payment for your tax bill.
Withholding and tax day
I mentioned that technically the tax bill is due the following year. On April 15 next year, your taxes for this year are due.
As an employee, the income tax process involves figuring out your income tax bill, and then subtracting the payments you made. That tells you whether or not you still owe money or if you get a refund.
This system often makes us unaware of our taxes. It never feels like the money left our pockets because it was never in our pockets to begin with. All we care about on tax day is, did we get a refund?
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 at the end of the year.
Tax withholding became a permanent thing around 1943. World War II was happening and it was expensive.
The thing is, if no one had to pay taxes until the following year, the U.S. government had to wait until the end of the year to get that tax money. One way to get money earlier was to require people to pre-pay their tax bill. If you pay the money sooner, they can spend it sooner.
The other issue is, most people aren't good at saving for things like taxes. Too many people were unable to pay their tax bills. The tax withholding system solved some of that problem. Having money withheld from paychecks is an excellent way to ensure that Uncle Sam gets his share of the money.
So why does Doordash NOT withhold our taxes?
You would think it would make sense. As the gig economy grows, the U.S. government might require some form of withholding. Unfortunately, it's not as easy as that.
That's because, as independent contractors, we pay taxes like a business. Our tax bill is based on our profits rather than the Doordash pay. That's the part that 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 we're taxed on profit, my business expenses could be much lower than yours. Maybe you drove a lot of miles (at 62.5 cents per mile deduction) and I rode a bike. The taxable portion of our gross revenue can vary widely.
So how is Doordash or anyone to know what to deduct? That variety in taxable income is why we are on our own.
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 similar.
Both ways, you sit down, figure out what you earned, then 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 is that you are the one in charge of what you take out of your pay, not Doordash. 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. If you weren't even aware that 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 this 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 of 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.
Seek to understand how taxes work for independent contractors. You can start with our Doordash 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.
Understand self-employment tax (your version of Social Security and Medicare). Learn how things like how actual car expenses compare to using the standard mileage rate. Know how to use your 1099-NEC (which reports your gross Doordash income) with Schedule C to keep your taxes down.
You don't have to make yourself a tax professional. But the best way to prepare yourself is to get to know how things work.
Step 3: Keep Records
Here's a starter on your understanding of taxes: Your taxes are based on business profit. That's the money left over after your expenses. That's not the same as the money that Doordash pays you.
Why is that an important thing?
It means that you can lower your taxable income if you track your expenses. That's because subtracting your business-related expenses from your business income is what gives you your taxable income. You can claim Doordash expenses for taxes whether you itemize or take the standard tax deduction.
The easiest way to keep your taxes down is to keep track of all those expenses throughout the year, rather than searching for deductions at tax time.
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 (62.5 cents a mile for the second half of 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):
Get it in the Android PlayStore
Get it in the App Store
Step 4: Save money as you go
Get a separate tax savings account. You want it to be different so you can't easily access the money.
Sponsored: I've been using Novo for my business banking. It's a no-fee account that is designed for business purposes. You can try them out here.
Every week, before you touch a penny 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 use 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.
The IRS has a quarterly schedule where you can send in estimated payments. Once you send it in, it's impossible for you to rob your tax fund.
Remember that I said earlier that the IRS wants most of 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 when you hear them called quarterly taxes. These are not additional taxes. All it is is you making quarterly pre-payments on your taxes. You fill out a form that asks who you are and how much you're sending in.
If you owe money, this is an excellent way to avoid additional fees, late fees, penalties, and interest.
You can read more about sending payments 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 and finding resources like this site. Or maybe you get support through apps like Hurdlr.
But seriously, folks… you have to understand this: Taxes for self-employed people can be expensive. If you make significant money as an independent contractor, 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 steps to stay out of trouble.
