Uber Eats does not withhold taxes from pay in the United States because delivery drivers are independent contractors, not employees. Because you provide services for Uber Eats as a business, you are responsible for withholding and paying your own taxes from your delivery 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 from your Uber Eats paycheck (even though there really isn't such thing as a paycheck with Uber Eats)?
We'll look at what tax withholding is all about with Uber Eats. 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 works typically for employees
- Why Uber Eats doesn't take taxes out of your delivery pay
- Six steps you can take to avoid a tax panic come tax time
This article discusses tax withholding for Uber Eats contractors in the United States. Uber may do things differently in other countries, as each nation has its own tax laws. This article is not tax advice. It is intended for educational purposes only. You should seek out a tax professional for guidance related to your specific tax situation.
Understand how tax withholding works for employees.
Even though Uber Eats does not withhold taxes, Uber delivery drivers still have to pay taxes. Being an independent contractor does not mean you don't pay taxes. It only means you're on your own.
Your earnings are still taxable. But since you do this as a business, you pay taxes as a business. However, now everything is your responsibility. You can't rely on an employer when you are the employer.
Employee tax withholding is a form of prepayment 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.
You could incur penalties and interest if you owe more than $1,000 at tax time. That's true whether you are employed or self-employed.
That prepayment taken out of an employee's paycheck is known as withholding.
Employers also take money from your check 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 to file.
Of course, the government gets to use that money right away, which makes it more like an interest-free loan. Or you can call it a prepayment for your tax bill.
Withholding and tax day
Taxes on income earned in a year are due April 15 of the following year (or the first business day after April 15). When you file your taxes, you calculate your tax bill, then subtract any money you paid leading up to that time. The difference determines whether you still owe money or get a refund.
If you are an employee, money withheld from your paycheck is included in those payments. If you are self-employed, you must ensure you send payments in yourself.
So why does Uber Eats NOT withhold our taxes?
If Uncle Sam requires employers to take money out of their employees' paychecks, why don't they do the same with independent contractors?
The answer has to do with how you calculate taxable income when you're self-employed. The money coming into your business is not your income. Instead, it's your profit (what's left over after expenses).
If you and I both received $10,000 delivering for Uber, 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 Uber 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 Uber Eats does not withhold taxes?
Since Uber does not withhold money for you, you must take steps to protect yourself (and your money) from tax time troubles.
This part of the tax process is similar whether employed or self-employed: You sit down, figure out what you earned, then figure out your tax bill. You get a refund if your payments and credits exceed your tax bill. 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 Uber Eats. 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 Uber Eats is withholding taxes, 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 Uber Eats 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 see a list of all the Uber Eats tax series articles here.
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 Uber Eats 1099-NEC and 1099-K forms (which report your gross 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 learn 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 Uber Eats pays you.
Why is that an important thing?
Because you can lower your taxable income if you track your expenses. Subtracting your business-related expenses from your business income gives you your taxable income. You can claim deductible expenses 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. 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): Hurdlr, TripLog, or Quickbooks Self-Employed.
Step 4: Save money as you go
Save money through the year for your taxes
Get a separate tax savings account. You want it to be a different account so that you can't easily access the money.
Every week, before you touch a penny you received from Uber Eats (or any other gig economy app), take money out for your taxes. Put that money in the bank.
Don't touch it.
How much do you take out? Using programs like Hurdlr or Quickbooks Self Employed gives you some estimates on what to save. Or you can check out this article that explains calculating what to set aside for taxes.
Step 5. Send it in.
The IRS has a quarterly schedule where you can send in estimated payments. Once you send it in, you can't 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 prepayments 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 to you.
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.
Paying an expert to help you wade through it is worth it.
Does Uber Eats 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.