Maybe that extra money from Uber Eats has been helping you save up for something special. Perhaps it's just helping you make ends meet in these tough times.
Or maybe the job situation is such that right now, being an independent contractor for Uber Eats, Doordash, Grubhub, Instacart and other food delivery apps is the best way to make a living.
But there's always that elephant in the room, isn't there?
What about taxes?
If it's tax season, maybe you're getting a bit uneasy. Or maybe it's just time to think ahead and plan for what you have to save.
What am I going to owe come tax time? Will I get a refund? CAN I get a refund? How bad is this going to hurt?
There are too many moving pieces for me to try to tell you what you'll have to pay. Everyone is different. Every situation is different.
I'm not going to try to get into all those things about dependents or special tax credits or any of that. Those things are all part of your tax picture no matter what.
What I will do is talk about how your Uber Eats income can impact the bigger tax picture for you. In this article we'll talk about:
- Important information about this article and this Uber Eats Tax series.
- How much should I save for Uber Eats taxes? Understanding the tax impact of your Independent Contractor Earnings.
- Three important facts about the tax impact calculator
- How is tax impact calculated?
- How your tax impact affects if you get a refund or have to pay in
- The Uber Eats tax impact calculator
Important information about this article and this Uber Eats Tax series.
Before we go any further, the following is really important when it comes to understanding taxes with Uber Eats.
One: This is not tax advice. Do NOT use this as tax advice. Your tax situation is different than anyone else's. If you need specific advice for your taxes and finances, tax professionals can help you much better than an article like this. This is for informational purposes only.
Two: This is about taxes in the United States. Every country has its own tax laws. Many things are similar and many can be very different.
Three: This Uber Eats tax calculator focuses on Uber Eats earnings. However, much of this is similar for other gigs like:
- Being a food delivery driver for other gigs like Doordash, Grubhub, Instacart etc.
- Uber Drivers, Lyft drivers and other rideshare drivers
Finally: This article is not meant to completely explain taxes for Uber Eats drivers. I think that's impossible to cover in one article. Instead, it's part of a larger series of articles on taxes for Uber Eats delivery drivers. This article talks about the how much. Other articles get into the how and the why.
You may find that one of these articles in the series may be a better fit for what you're looking for:
How much should I save for Uber Eats taxes? Understanding the tax impact of your Independent Contractor Earnings.
In the end, you want to have put aside enough money by the time you file your tax forms that you won't need to pay in. As April 15 draws closer, you want to have an idea how different taxes are because of your earnings.
That's what this tax calculator is for. It's not about estimating your entire tax return. It's about knowing what difference is made by your independent contractor work.
What we're doing here is asking the question: How much less will my refund be because of my Uber Eats and other gig income? Or how much more will I pay in because of that.
Think of it this way: If you're an employee, you fill out a W4 and that helps your employer know what to withhold for income taxes.
The idea of a W2 isn't as much about figuring out your total income tax picture as much as it is to help you take out enough to cover your tax bill based on one job's income. That's kind of the idea of the tax impact calculator.
If you know how much more you might pay in taxes, then you can plan for that. It lets you get a reasonable idea of what to set aside. We do write in more detail about how much to save for taxes as an Uber Eats and gig economy contractor here.
Three important facts about the tax impact calculator
As I mentioned, we're not trying to cover the entire tax process. For that reason, we go into more detail on these things elsewhere in this Uber Eats tax series. But there's a couple important points to understand, and we'll give the TL;DR (too long/didn't read) version here:
1. As an independent contractor, taxes are based on profits, not total money received from Uber Eats and others.
This is the first thing you need to understand. It's also good news.
Your additional taxes are calculated based on what's left over after expenses. It's your earnings from Uber Eats and others minus expenses, business miles, etc.
The reason it's good news is, you can claim those business expenses whether or not you itemize claim the standard deduction. All of that gets figured out on a form called Schedule C.
When you understand this, you realize that the greatest thing you can do to keep your taxes down is to keep track of your miles and expenses and keep detailed records..
2. To understand the tax impact of your Uber Eats earnings, you need to know there are two Federal taxes involved here.
If you've only filed taxes as an employee in the past, this can catch you off guard. You aren't only paying income taxes here. You also have to pay self employment tax.
It's not an extra tax. As an Uber Eats courier, you are self-employed (also known as a sole proprietor). Normally an employer takes Social Security and Medicare taxes out of your check, but since Uber Eats is not your employer, that's up to you.
Self-employment tax is our version of Social Security and Medicare.
We go into more detail here about how Self-Employment taxes work for Uber Eats contractors.
The big takeaway is, we're technically small business owners and we have to file both income and self-employment taxes.
3. There are three major steps in the income tax process.
When you figure out your taxes, the following happens:
- First you figure out how much taxable income you have. This involves adding up income and then taking away deductions.
- Once you know your taxable income, you can figure out your income tax bill. At this time, you also add your self-employment tax bill to come up with a total tax bill.
- Finally, you apply any payments, withholding, and tax credits to that tax bill. If those add up to more than your tax bill, you get a refund. Otherwise you pay in.
The money you earn from Uber Eats and other independent contractor gigs has an impact on the first two. Ultimately, it makes a difference on your tax bill.
This brings us back to that “tax impact” term. How much does your business profit impact your tax bill?
The whole part about whether you get any of the tax credits and what you've already paid in isn't really impacted (other than if you decided to make quarterly estimated payments).
How is tax impact calculated?
What the tax impact calculator is going to do is follow these six steps:
- Estimate your business income (your taxable profits).
- Use business income to figure out your self-employment tax
- Add other income you received (wages, investments, etc) to figure out total income
- Subtract deductions and adjustments to get total taxable income.
- Figure out the income tax impact from your business profits
- Add self-employment tax to income tax impact to get your total tax impact.
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While other income and many of the tax adjustments (steps three and four) aren't related to your business, they do make a difference on what your income tax bracket is.
In this calculator, we're going to assume that whatever you earn is added to other income. That means if you move into a higher tax bracket because of your delivery business, we'll figure that your business profits will be taxed at the higher percentage.
We'll talk just a bit about each step that the calculator will walk you through:
1. Estimate your business income (your taxable profits).
We're not going to break down every single expense here. In fact, we'll leave that up to you if you want to try to add up any of your other business expenses other than miles.
Personally, in my day to day I just figure my profit as earnings minus the standard mileage deduction (56 cents per mile for miles driven in the 2021 tax year). All the other things are small in comparison.
We're going to ask four things to keep it simple:
- Which year are you doing this for?
- What was your gross income? (How much were you paid by Uber, in tips, etc)?
- How many business miles did you drive?
- Total amount of other non-mile business expenses.
One thing to understand is that Uber Eats does their tax documents like 1099 forms kind of funny. They report different income than what was deposited in your bank account and the uber tax summary can be confusing. For purposes of this tax calculator, just use the total money you actually received from Uber for the year.
After you enter those two things, you'll see two numbers.
Your business profit (called net income) is what's left over after subtracting business expenses and the standard mileage rate.
The second number is a taxable business profit. The IRS gives us special allowances to write of half of your self employment tax. This is what your income will be after that 7.65% of income was written off.
Once you've done this, you can move on to step 2.
2. Use business income to figure out your self-employment tax
This one is pretty simple. There's nothing you have to do here.
The calculator will multiply your taxable income by 15.3%. This is what you have to pay in to cover your Social Security and Medicare or FICA taxes.
We figure this out here because the adjustments and other income (steps 3 and 4) won't change your self-employment tax. It's just like being an employee, your FICA taxes are the same no matter what your filing status, tax deductions, etc.
3. Add other income you received (wages, investments, etc) to figure out total income
Now we'll ask three things:
- Did you have any W2 income? If you had more than one job, add those all up
- If you're filing a joint return, what was the total of your spouse's income?
- What additional taxable income did you have (things like interest, investments, etc that you have to claim on your taxes?
Once you've added those things up, that income will be added to your taxable profits to get your total income.
4. Subtract deductions and adjustments to get total taxable income.
Now we'll get into your filing status, deductions and other adjustments to taxable income.
First, we ask how you plan to file. That helps determine your standard deduction.
Next, we ask if you plan to itemize, and if so, how much you expect your total deductions to be.
When that's done, you'll see the following totals:
- The total income we're starting with (from the end of step 3).
- Your qualified business income deduction (you can usually write off 20% of your business profits as a self-employed business owner).
- How much your standard or itemized deduction will be
- The total other adjustments you expect to get
- The total of all of the deductions and adjustments
- What your overall taxable income is. This is the income that determines your tax bracket is and will be used to calculate your income tax bill.
- What part of your business income is taxable.
5. Figure out the income tax impact from your business profits
There's nothing you have to do here. You've already entered in all the income, expense and adjustment information.
What part 5 does is it breaks down how your business income is taxed for income tax purposes.
To understand this section, you have to understand how tax brackets work. Income tax is figured in steps. The first several thousand dollars of taxable income is taxed at 10%. That money is only ever taxed at 10%.
It's only the money that you earn beyond the 10% bracket level that is taxed at higher. For simplicity sake (since the brackets change every year) say the limit for the 10% bracket is $10,000 and you made $15,000.
- The first $10,000 is taxed at 10%. The tax for that $10,000 income is $1,000.
- Only the remaining $5,000 is taxed at the next level (12%).
- If you earned more than the limit for the 12% bracket, it's only whatever you earned beyond that limit that's taxed at the next level, and so on and so on.
What we show here is, how much is taxed at each tax bracket and what the tax amount for each is.
This is only calculating income tax on your business profits, not the entire income tax bill. That's because we're focusing only on the tax impact of your Uber Eats and other business earnings.
6. Add self-employment tax to income tax impact to get your total tax impact.
Now we have an income tax impact. We also have your self-employment tax from Step 2.
Very simply, we add the two up, and we have the total tax impact from your business earnings.
This tax impact is not the same as a refund or paying in. All the total tax impact tells you is how much more your total tax bill will be before payments and credits are applied.
How your tax impact affects if you get a refund or have to pay in
Like I said earlier, there's so much more involved in your personal taxes. We can't completely try to cover that.
Earlier I said there were three main parts of the tax filing process: Figuring out the taxable income, determining the tax bill, and applying credits and payments to that bill.
The tax impact calculator figures out how much higher the tax bill will be because of your business earnings. It doesn't get into the payments and credits.
The higher the tax bill, either the more you pay in or less you get in refund. All that depends on your payments.
A tax credit acts like a payment. That's different from a deduction, which only reduces taxable income.
Add up any money you had withheld from paychecks, any estimated payments you sent in, and your tax credits. If the total was more than your tax bill, you get a refund. If it's less, you pay the difference.
It's a little more complex than that, as some tax credits don't lead to a refund, but you get the idea.
Think about it this way: Do you have an idea what you would normally get back without your independent contractor income? Or would you normally pay in?
That's the part that gets changed by the tax impact.
If you'd normally get a $1,000 refund and your tax impact is $2,000, now you'd end up paying in $1,000 instead. If you'd normally get a $5,000 refund, that $2,000 tax impact would reduce that to $3,000.
The Uber Eats tax calculator
You can click here to access the calculator. We put it on another page because frankly, the tool we used for the calculator can tie things up a bit.
Please understand, this is not a guaranteed number. It relies heavily on the information you put in. The idea here is to give you an estimate as to how much more you might pay in, or how much less you might get back, as a result of your business income.