Understanding 1099 Forms for Delivery Drivers in the Gig Economy

If you have earned more than $600 delivering for any particular gig economy company, you will likely receive a 1099 form at the end of January reporting your income.

What is a 1099 form? How does this work with your delivery driver taxes? How is it different from a W-2 form?

We'll look at how 1099 forms work for self-employed delivery drivers. We'll talk about the following:

• What is a 1099 form?
• Why do we get a 1099 form instead of a W2?
• Different types of 1099 forms
• What do you do with your 1099 form?
• What if you didn't get a 1099 form?
• What if your 1099 form was wrong?

About this article

This article does not look thoroughly at delivery driver taxes but only focuses on 1099 forms. It is, however, part of a more extensive series of articles on taxes for gig economy delivery drivers. We'll link to other articles in the series and provide a comprehensive list of all articles at the end of the post.

We'll talk about United States federal taxes. Other countries have their own tax laws. State and local taxes may be different as well. You should seek a tax professional familiar with taxes in your area.

This is not tax advice, and you should not take this as tax advice. The purpose is to provide education and information to help you understand how 1099 forms work in relationship to your personal and business taxes. You should seek a tax professional who can assist you with answers for your individual tax situation.

Finally, we discussed this in an episode of the Deliver on Your Business podcast. You can listen to the discussion, either with the video or the linked podcast episode.

What IS a 1099?

The IRS requires a company to report payments made over a certain amount of money to non-employees. The purpose of this reporting is tax accountability.

On the one hand, the IRS needs to verify that a company actually paid contractors as much as they said they did. At the same time, they want to ensure the paid individuals properly report that income at tax time.

A company like Amazon Flex, Shipt, Grubhub, etc., has to inform the IRS of anyone who received more than $600 and what they received. Then they need to tell you what they reported, which is done with a 1099 form.

Why do we get a 1099 form instead of a W2?

We receive a 1099 form because we are independent contractors and not employees. As independent contractors, you provide services as a business rather than an employed worker.

As a result, you are technically and legally running a business. Your delivery driver taxes are business taxes, as opposed to employee taxes. A W-2 reports income for you as an employee, while a 1099 form reports revenue for your business.

When you compare a W2 form 1099, you'll see a lot of differences. The 1099 form typically reports only what was paid to the contractor, while a W2 reports wages, withholding, and possibly some benefits.

Different 1099 forms

Not all gig companies use the same 1099-form to report income. A recent change in contractor reporting created some confusion. We'll talk about the different forms and how gig companies use them.

Form 1099-NEC

This is the form that is used by most delivery services to report income. NEC stands for Non-Employee Compensation. When a company pays a contractor for services performed who is not an employee, that payment is reported with the 1099-NEC form.

Form 1099-K.

The 1099-K form does not technically report independent contractor earnings. Payment processors use 1099-K to report how much money a company was paid using the payment processing platform.

The most typical use of 1099-k reporting is when a business receives credit card payments for products or services. Online sellers, such as eBay or Etsy, who use platforms like Paypal will get a report of their earnings via a 1099-k form.

In previous years, a company had to receive more than $20,000 before it received a 1099-k. Starting with the 2022 tax year, that threshold is now only $600.

Some gig economy platforms, including Uber and Lyft, use the 1099-K form. This is because they claim they are only connecting customers with contractors and that the customer is paying the contractor directly. Therefore, their role is merely that of a payment processor, not as the company hiring the contractor.

When this happens with a delivery platform, they may actually send two different 1099s. They'll send a 1099-K to report delivery fares and customer tips and a 1099-NEC for incentives, bonuses, and referral fees directly from the company.

Form 1099-MISC

The 1099-MISC form reports several different payments from a business to an individual, including (but not limited to):

• Rents
• Royalties
• Medical and healthcare payments
• Direct sales
• Proceeds paid to an attorney

Before the 2020 tax year, there was a line item for Non-Employee Compensation. Thus, the 1099-MISC form was used by most gig economy companies. Because there were different reporting deadlines for Non-Employee compensation and for the other payment types, the IRS created the 1099-NEC form to avoid confusion.

After that change, the use of 1099-MISC forms for gig workers is pretty unusual.

Other 1099 forms:

There are a number of 1099 forms an individual might receive. Most of these report personal income, as opposed to independent contractor business income. Here are some of the more common forms.

• 1099-C: Cancellation of debt
• 1099-DIV: Dividends and distributions from corporations and investments
• 1099-G: Government payments such as unemployment income
• 1099-INT: Interest income
• 1099-R: Retirement income
• 1099-SA: Distributions from an HSA or certain Medical Savings Accounts.

What do you do with a 1099?

There's a substantial difference between how employees use their W2 for taxes and how an Independent Contractor uses a 1099 form.

An employee immediately adds their W-2 income directly to their 1040 tax form. That money counts as personal income.

However, as an independent contractor, money received for services is not personal income. Instead, it's your business's gross income.

Remember that this became about business taxes when you became an independent contractor. As a result, your profit, or what's left over after expenses, becomes your income for income tax purposes.

You create your own version of a W-2 form to a certain extent. You do that by filling out form Schedule C (“Profit and Loss from Business”).

If you contracted with several delivery services, you'd receive a 1099 form from any who paid you more than $600. Add up all your earnings from all platforms and enter that number on line 1 of Schedule C.

Once you've done this, your next step is adding up all of your business expenses and entering them in Schedule C's “Expenses” section. Subtract expenses to get profit, and add your profit to your tax form as income.

There's one last difference between 1099's and W2's. You get several copies of your W2 form and must attach a copy with your tax return. You only receive one copy of your 1099 because it is not necessary to submit that form when you file taxes.

What if I Don't get a 1099?

There can be several reasons it hasn't happened.

• The company hasn't sent one out yet. They have until January 31 (or the first business day after that if it falls on a holiday or weekend) to get it in the mail. If sent by mail, it could take 6 or 7 business days for it to arrive.
• You made less than $600, and they aren't required to send one.
• There's an issue getting the report to you, such as an incorrect mailing or email address.

If it's mid-February and you have not received your 1099 form, first make sure you earned enough money to get one. Then contact the company and ask them to get a copy.

You do not have to have a 1099 to file your tax return. As a business owner, it's your responsibility to know what your business has earned. You're also required to report any income made, regardless of receiving a 1099 form. 

Your best practice is to keep good records, whether using a software program like Hurdlr, or keeping a spreadsheet or ledger. 

What if my 1099 information is wrong?

Some delivery companies have a terrible track record regarding the accuracy of their 1099 forms. Several years ago, Doordash issued a lot of inaccurate 1099 forms. More recently, some 1099s Grubhub sent out were wrong. These companies contract with millions of contractors, so it's possible they can be wrong.

Because these companies are telling Uncle Sam that you made a certain amount of money, you want to ensure the 1099 forms are accurate.

For example, if XYZ Company told the US Government that they paid you $100,000 when it was only $10,000, that can create some real tax issues for you. The IRS expects you to report at least $100,000 in business income; if they don't see that on your return, they could be knocking at your door.

For that reason, it's critical that what they report and what you actually receive be the same.

Your first step is to make sure the 1099 is truly incorrect. How do you know it's wrong? Have you kept good records?

Don't rely on simply adding up totals in the earnings section of the driver app. For instance, Doordash's earnings on the app only go back a few months.

When you are sure the form is incorrect, you must contact the company and request a correction. We talk more in this article about 1099 issues and what to do about them.

Wrapping up

I can't emphasize enough that as an independent contractor, you're doing business taxes. Income from Doordash, Uber Eats, DeliverThat, BiteSquad, Roadie, and other third-party companies is business income.

There's an important difference between employee taxes and those for self-employed independent contractors. Employees depend on their employer to tell them what they've earned, whereas business owners rely on their own records. 

Good bookkeeping gives you two distinct advantages during tax season:

• You know immediately when a 1099 form is wrong
• You're not as reliant on the 1099 forms and instead report based on your records.