The beauty of delivering for Uber Eats is it's pretty easy to make extra money quickly.
In fact, it's so easy that all of a sudden, you realize you have to pay taxes on that money.
What's the big deal about taxes? Isn't it just like with any other job?
There's the problem: This isn't a job. Technically according to your contract and according to the IRS, you made that money as a business. We're talking about business taxes here.
For a lot of us, things just got really intimidating with that realization. This feels like more than we signed up for, doesn't it?
But here's the thing: Taxes for Uber Eats don't have to be that difficult. They're not this super secret mystery that so many people make it out to be.
That's why I wanted to put this guide together. I think it's possible to understand how it all works. And then when you know how it works, you get a better idea what to expect. That lets you plan and prepare for tax season.
We're going to talk about nine important tax concepts. None of them are that difficult. Each concept will make it easier to understand how Uber Eats taxes work.
Important disclaimers before we go any further:
First of all, this is not tax advice. I am not a tax professional. This article is meant to provide information and help you understand how taxes work. One of the reasons taxes seem so mysterious is that everyone's financial situation is different. For that reason, for advice for your specific tax situation, you should seek out a tax professional.
Second, this article is specifically written about taxes in the United States. Every country does taxes differently. A lot of these concepts are similar in other countries, however if you are looking for more specific information about how taxes work for Uber Eats drivers in other countries, you may need to find more information specific to your country.
Finally, while the title and focus of this article is on Uber Eats taxes, these concepts apply to just about any independent contractor gig. Taxes for Doordash, Grubhub, Instacart, and all the other platforms are pretty much the same thing. There's a lot of similarity for rideshare drivers as well. I decided to make this series because there are a few things that are kind of quirky about how Uber does things for their rideshare and delivery contractors.
About this article series
So what's a guy who's not a tax professional doing writing a series of tax articles?
I'm writing this because I don't think taxes are as complicated as we make them out to be. If a guy like me who's been delivering for Uber Eats and several others for several years can get how it works, I think anyone can.
And then I see people putting out tax articles and graphics that just get it wrong. Some don't seem to understand where delivery is different than rideshare. And others skip over how there are some things about Uber Eats that are different from other food delivery services.
Finally, most of the information out there is too simple. It's always just this big overview and too often, they leave a lot more questions than they answer. Great, I can write off mileage, but what miles can I write off? What's the best way to track and what if I forgot to track?
That's why this is the first article in a series. This article will give you an overview of how taxes work. Then we'll have several articles that go into more detail.
As you read through this, you'll find links to other articles in the tax series that go into more detail about the particular topics. Sometimes we'll link to other articles on this site that already address the topic. At the end of this article we'll provide a list of the other articles in this series.
Nine Important Concepts to Help you Understand Uber Eats Taxes
If you undestand these nine things, Ubereats taxes start to make a bit more sense. It won't make you an expert by any means, but it makes sense.
And when the tax process makes sense, you get a better idea what to expect. Knowing lets you plan and prepare.
And then all of a sudden it's not so intimidating. You don't get blindsided on tax day. It helps you make decisions that help you keep your taxes down.
Here are the 9 important concepts you need to know about taxes as an Uber Eats delivery contractor:
- We are taxed as small business owners
- Uber Eats Taxes are based on profits
- What Uber Eats paid you and what they say they paid you are two different numbers
- Your car expenses can reduce your taxable income by thousands
- There are several other business expenses you can write off.
- Schedule C is the most important tax form outside your 1040.
- We have to pay self-employment tax (our version of FICA)
- Profits added to other income determine your income for your tax form
- Income tax bill plus self-employment tax minus payments and credits equals what you pay in (or refund).
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1. We are taxed as small business owners
We mentioned this earlier but it's important to bring up again.
You are not an employee of Uber Eats. When you signed up with them, you agreed to terms of service that stated that you understood you were an independent contractors and not an employee.
What that means is that you are providing a service as a business, not as an employee.
And you're taxed as a business. Most independent contractors are known as sole proprietors. It's just like if you start any other kind of business but don't actually incorporate the business.
If your business is a sole proprietorship or a simple single member LLC, taxes for the business are done on a pass through basis. In other words, your business profits are passed through to your individual tax return, and you pay taxes based on the individual tax rates.
What this means is, you are on your own. No one is withholding your taxes for you.
An employee has money taken out of their check each week for Social Security, Medicare, and Federal, State and Local income taxes. None of that happens with your pay from Uber Eats.
It is your responsibility to know what to save and put it aside for taxes. Failure to do so could be an incredibly expensive mistake.
The good news is, it's not all bad news. In fact, being taxed as a business gives you a huge advantage which we talk about in the next concept.
2. Uber Eats Taxes are based on profits
This is very different from being an employee.
Here's the thing: Your income and FICA taxes are based on your income. It's a percentage based system. The more you make, the more you owe.
The important difference here is that your income from your business is NOT the money you got from Uber Eats or any other gig apps. That's known as gross income. Your business income is your profit (or net profit). It's the amount of money that's left over after expenses.
To understand how your taxes work, you have to first figure out your profit. Put very simply, that means first you have to know what you made. Then you have to know what your expenses were. Subtract expenses from your revenue and that's your profit.
This is really good news. That's because it means you can write off all of your business expenses without going through the itemized deduction process. In other words, you can claim things like miles, phone expenses, delivery bags even if you claim the standard deduction.
3. What Uber Eats paid you and what they say they paid you are two different numbers
Uber Eats does some things very differently when it comes to reporting your income.
In fact, that's why the next article in this series discusses Uber Eats 1099 forms and tax documents. It's a bit much to try to explain in an overview like this. But here are some important things to know about how Uber Eats reports your income.
- Uber Eats claims to have paid you more than they actually did. They say your actual pay for deliveries was more than what was deposited in your bank account, but that there were fees and commissions charged to you and taken out. For example, you received $10,000 from Uber Eats. They report that you were paid $13,000 but then $3,000 in service fees were deducted from your pay.
- Uber Eats uses two different 1099 forms. They report delivery fees and tips on form 1099-K, and incentive, promotion and referral fees are reported on 1099-NEC (it used to be on 1099-MISC but for the 2020 tax year they started using the 1099-NEC form).
- You could earn thousands of dollars and not receive a single 1099 form because of how Uber Eats does things
- The IRS still requires you to report your income whether you receive a 1099 form or not.
It is really important to understand how Uber Eats does things so you can make sure that 1) you know what you actually made and 2) you don't end up overpaying.
Maybe the most important document from Uber is your Annual Summary
The good news here is that Uber Eats provides an annual summary as part of their Tax Information. You can find your tax summary by clicking on Account in your app then clicking Tax Information.
The important thing on the annual summary is the part they call Expenses, Fees, and Tax. This is the section that tells you what extra amount Uber Eats says you were paid but was deducted before you were paid.
The reason this is important is that this item is the difference between what was reported and what you really received. If you ignore this, you end up paying more than you should for taxes.
Unfortunately, if Uber reports you received a certain amount of money, that's what you have to list on your taxes. Fortunately, the “Uber service fee/other adjustments” can be written off as an expense. That expense item evens out the difference between what Uber claims and what they paid you.
4. Your car expenses can reduce your taxable income by thousands
Remember that you are taxed on profit. It's based on what's left over after expenses.
Using your car for business is a significant expense item. You can reduce your taxable income by that, and the IRS gives you two different ways to figure out what that expense is.
It's so significant that if you drove a mile for every dollar you earned, you reduced your income by more than half. If you made $10,000 and drove 10,000 miles, you can write off $5,600 (possibly more) for using your car. Which means your taxable income is $4,400 or less.
That's pretty significant.
Two ways to calculate the cost of using your car.
The IRS actually gives you a choice as to how you calculate your vehicle expense.
One is the standard mileage allowance lets you take a flat rate of 56¢ for every mile that you drove in 2021 (58.5 cents for 2022).
The other option is the actual expense method where you claim the business use percentage of the actual cost of using your car. First, you add up all the costs of using your car. Those include things like:
- Oil changes, maintenance, repairs and other part replacement
- Registration fees
- Depreciation (if you own the car) or lease payment if leasing.
Next, figure out what percent of your overall miles were for business. Divide the number of business miles by total miles for the year. For example, 10,000 miles out of 12,500 total miles is 80%.
That means you can claim 80% of the actual cost.
The thing is, you have to choose one method. You can't claim an expensive repair and the mileage rate at the same time. That's essentially taking the same expense deduction twice.
There's a lot more involved in what miles you can claim, the best ways to track them, and all the things that go into figuring out the actual cost. We go into more detail in the part of this series on Claiming car expenses and miles for Uber Eats.
The important thing is, either way, you need a record of your expenses. If you use the standard mileage deduction, you must have a mileage log. If claiming actual expenses you need a mileage log AND proof of purchases (receipts).
5. There are several other business expenses you can write off.
Your car expense is not the only thing you can write off.
A lot of drivers make the mistake of thinking that if they claim the mileage deduction, they can't claim any other expenses at all. Understand that the distinction here is between the standard mileage rate and actual VEHICLE expenses. Non vehicle expenses can still be claimed either way.
Here's what the IRS says about if an expense is a legitimate business expense: The expense needs to be necessary for the operation of your business, and it must be an ordinary expense for your type of business.
If you buy delivery bags for your business, you can claim that as an expense. If you bought the paid subscription for Hurdlr to track your business expenses, that's a part of running your business.
You can claim part of the cost of some items that have both business and personal use. An example would be your cell phone. You need a smartphone because everything is driven by the Uber driver app. You need to estimate what percentage of the use is for business, and then claim that percent of the plan and of the phone itself.
Remember the phantom extra pay that Uber Eats reports as mentioned in concept #3? Uber claims that's a charge they deducted from your pay for their service fees and commissions. That's a deductible expense. Claiming that is the way you make up for the extra that they claim to have paid that you never received.
It would take up too much space to go into all the things you could write off, so we invite you to view the part of this series that talks about business expenses beside your car that you can write off for Uber Eats deliveries.
6. Schedule C is the most important tax form outside your 1040.
Up to this point, the whole thing about your taxes is about your profit and loss for your business.
When it becomes tax time, the place to put all that down is on a form called Schedule C: Profit and Loss from Business.
This is where most everything happens for your business taxes.
Most contractors make the mistake of thinking their 1099 form is their version of an employee's W2. It's actually the Schedule C. The point here for either document is to show how much income you had. Remember that your business income is your profit, not the gross receipts from Uber Eats (and others). Schedule C helps you document what that profit really is.
Schedule C has two important parts to it: One is where you put down your income. The other part is where you put down your expenses. Subtract expenses from income and that's your profit.
It's your profit that gets moved over to your tax form in the same way that W2 income does.
There are twenty different expense categories on Schedule C. What you will do is add up those expenses for each category and list those totals on lines 8 through 27. Line 27 is a category called Other Expenses. Any expenses that don't meet one of those categories would go here. For example, Line 27 is where I personally list the Uber Eats service fees that we've talked about.
Another part of this series goes into a lot more detail on how to fill out Schedule C as an Uber Eats delivery driver.
7. We have to pay self-employment taxes (our version of FICA)
I mentioned in Concept #1 that we are on our own for FICA taxes.
This is actually a pretty big deal. In fact, it's the one thing that often makes the difference between a huge tax bill and not having to pay in at all.
That's because of two things about FICA (Medicare and Social Security) that are done very differently for self-employed people than they are for employees, and one thing that is done exactly the same but that we don't think about:
a. Employees don't have to file anything for FICA
When you're an employee, you really don't have to worry about Social Security and Medicare. The money just gets taken out and Uncle Sam gets paid. No tax forms need to be filed. You don't really think about it as an employee, do you?
As an independent contractor, you still have to pay those taxes. But like we talked about earlier, no money is taken out of your pay from Uber Eats (or any other gig economy platform). You have to do it yourself.
Here's a good exercise to help you understand what an impact that is. If you have any year-end W-2 forms, go look at boxes 4 and 6 for Social Security and Medicare taxes withheld. That much is taken out of your check through the year, while nothing is taken out of your Uber Eats earnings. Your Uber Eats pay is very different from a paycheck.
But that's just the beginning.
b. Independent Contractors pay twice as much as employees.
Remember how I told you to look at the Social Security and Medicare withholding on a W2? Double that amount.
That's how much you have to take out of your own pay for the same income and send in yourself as an independent contractor.
An employee pays 6.2% for Social Security and 1.45% for Medicare. Self-Employed individuals have to pay 12.4% and 2.9% respectively, for a 15.3% total.
Uncle Sam doesn't get any more for all of that. That's because an employee only pays half and the employer has to pay the other half.
So, who's your employer?
That's where the self-employed comes in. Without an employer, we have to pay both halves.
c. We pay Social Security and Medicare on every dollar earned.
This is the one thing I said was the same for employees as it is for self-employed.
Self-Employment tax is different than income tax in that it doesn't wait until you've met your Standard or Itemized deductions before you start owing taxes. Taxes come out on every dollar you earn as an employee.
You can make $10,000 and not owe any income taxes because of deductions. But you still owe $1,530 for your Social Security and Medicare.
When it comes to the tax process, the Self-Employment Tax part is pretty much done when you've figured out your profits. You pay Self-Employment tax based on 15.3% of your business profit. Other income doesn't impact your self-employment tax.
How it works is you fill out a form called Schedule SE. On that form, you list your business profits, mulitiply that by 15.3 percent, and figure out your Self Employment tax. From there you pretty much set it aside until all the other tax stuff is figured out.
Then when the taxes are all done, Self Employment tax is added to your income tax to determine what your final tax bill is. We get into that in more detail in the part of our series on Self-Employment tax for Uber Eats drivers.
8.Profits added to other income determine your income for your tax form.
Again, I go back to the thing about your profits are your income.
Now that you have put your income into the income in Schedule C, then added up your expenses in the expense part of Schedule C, the difference is your profit. That profit now becomes your income from your business.
If Uber Eats (and other gig work if you work multiple apps) is your only source of income, that profit from Schedule C is the one thing that goes in the income side of your 1040 form.
If you (or your partner if filing a joint return) have other forms of income such as investment income, W2 income, etc, all of that gets added up together with your business income to become your total income. This goes into line 9.
9. Income tax bill plus self-employment tax minus payments and credits equals what you pay in (or refund).
Here's where it gets tricky and a bit wild.
I see a lot of people ask on social media, “How much will I owe if I make this much money?” There's no way to answer that because there are so many variables. Filing status, dependents, other income and so many other things can impact what your income tax bill would be.
And then there's a wacky set of subtractions and additions to come up with whether you have to pay anything on April 15 or if you get a refund.
In a nutshell, here's how it goes:
- You start with your total income.
- Subtract some allowances and tax deductions to get your taxable income
- Figure out your income tax based on taxable income, filing status, and your tax bracket.
- Add your self-employment tax to your income tax for your total tax.
- Add up your tax credits, withholding, and estimated tax payments and compare them to the total tax.
- If payments and credits are more than the total tax, you get a refund, if not, you pay in.
That might be oversimplified. There's some nuances like certain credits are applied at certain times. But that's it in a nutshell.
You can read more here about how your Uber Eats income affects your income taxes.
What does all of this mean for us now?
The important thing is to be aware of how taxes work.
You understand now that you're on your own for saving your own taxes.
You also know the good news. Because you're taxed like a business, and your PROFITS are your income, that means you can write off all your business expenses, whether you itemize deductions or not.
Taxes are complicated in some ways, very simple in others. A lot of the complexity in taxes has to do with all the little details. There are a ton of rules here and there because there are a ton of different situations those rules have to address.
With all that said, I suggest the following four action steps:
1. Focus on the the tax impact of your Uber Eats earnings.
Income tax is such a wildcard because of things like other income, filing status, deductions, tax credits and the like. That's why I try not to get into what your taxes will be and I especially stay away from trying to predict if you'll pay in or get a refund.
I think the better option is to think about how much does your self-employment income IMPACT what your taxes will be? If you would normally pay in at the end, how much more will you have to pay in now because of the additional income.
Or if you might normally get a refund, how much LESS would the refund be?
Another part of the series is our Uber Eats Tax Calculator. In that, we walk through trying to figure out what your tax impact will be.
If you're an employee, you try to make sure your tax withholding is enough to cover what your taxes will be. As an independent contractor, the best way to do that is to try to figure out what your tax impact will be.
2. Track everything.
You're running a business.
One of the most important things a business can do is keep track of their expenses and income.
My advice: Track everything. If you think something could be a legitimate business expense, keep track of it. You can always ask your tax pro and if they tell you no, you just can't claim it.
But the thing is, it's a lot worse to find out you could have claimed it when you didn't track it, than it is to track it and find out you can't claim it. Keep receipts, and at least figure out some basics of bookkeeping and expense tracking.
I think for just getting started, Hurdlr is probably THE best tool you can use. The free version of the app is pretty powerful, more powerful in my opinion than some paid apps like Quickbooks Self-Employed. My link here is an affiliate link, which means if you get the paid subscription from m link, I can make a commission. While that'd be great, the truth is the free version works great for a lot of people.
3. Save for Taxes
Think about past tax returns if no money had been taken out for past Employee taxes for Social Security, Medicare, or your income taxes. What would it have been like trying to scramble to get that paid?
Because that's what's happening now as an independent contractor.
Now that YOU are your employer, you owe your employee (also you) the courtesy of making sure they're taken care of when tax time rolls around.
Hurdlr has a good calculator in it to help you know what to save based on your filing status and other income. You can also check out our article on what to save for taxes as an independent contractor.
The best practice is, each week, pull money out for taxes. Before you touch a penny of that week's pay, pull that money out and set it aside. The best thing to do is get an account that is not tied to your checking and put the money there. Once a quarter, send that money in to the IRS as an estimated tax payment.
4. Get a Tax Pro
I will tell you again, I don't think that taxes are as mysterious as we make them out to be.
But there's a lot of little details. Especially when you're just now trying to learn how they work, the best thing you can do is find someone who knows this stuff pretty thoroughly.
I use a tax pro. It's worth it to me because he'll find things I hadn't thought about.
I can't give you tax advice. All I can do is try to educate and provide information based on my research and experience. But a tax pro can help you specifically based on all the variables that are part of your tax situation.
The more you know, the easier you make things for your tax pro. But even with all I can do to provide as much information as possible, the only piece of tax advice that I ever give out is, get a tax pro.