Gig drivers, a vital part of the burgeoning gig economy, have become an indispensable force in the transportation and delivery sectors. Individuals who work as drivers for rideshare or delivery companies, such as Uber, Lyft, or DoorDash, navigate the dynamic landscape of urban and suburban areas, providing a convenient and efficient mode of transportation for passengers or delivering goods right to the doorstep of customers.
As a reflection of their unique employment structure, these drivers are typically considered independent contractors. This classification grants them the flexibility to choose their hours and operate their businesses as they see fit.
However, the status of being an independent contractor comes with a significant caveat: managing your own taxes. This entails that gig drivers are solely responsible for tracking their income, expenses, and tax obligations as self-employed individuals. They must accurately report their earnings and pay both federal and state taxes on their income, in addition to keeping up with any necessary business-related documentation.
This responsibility requires a heightened level of financial acumen and discipline, ensuring that drivers maintain a keen awareness of their fiscal health and meet the necessary tax deadlines. The world of gig driving is one marked by autonomy and entrepreneurship, but also by the important obligation of tax management.
Unlike “regular employees” whose wages are reported on a W-2, independent contractors usually receive a 1099-NEC form, a 1099-K form, or both from the gig company, reporting their income if it exceeds a certain threshold.
Note that even if you don’t receive a 1099, you still need to report your income, so keep accurate records of your earnings, including cash tips, throughout the year. This will help you report your income accurately on your tax return. You must state this income on Schedule C (Form 1040) and pay self-employment taxes on your earnings.
It’s not quite as bad as it sounds, but if it seems daunting, you may want to consider using a tax program or hiring a professional tax preparer. Doing so may help you uncover deductions you didn’t know about, which, in turn, could lower your taxes.
As an independent contractor performing gig work, you may be required to make quarterly estimated tax payments if you expect to owe more than $1000 in taxes for the current tax year (after accounting for any withholding from other jobs or credits).
To prevent incurring penalties, ensure that you pay enough tax on time. If you are unsure how much to pay, several tax calculators online can give you a rough estimate. Many tax preparation sites have ones that you can use for free. You can also use Form 1040-ES (Estimated Tax for Individuals) provided by the IRS to help you calculate the estimated tax.
Quarterly estimated taxes are due on specific dates throughout the year:
If your gig work is a side job, you may be able to avoid paying quarterly tax payments by having more taxes withheld from your paycheck at your full-time job. If you need to pay them, you can do so online at the IRS website.
Be sure to track your business expenses separately to make it easier when tax time comes. Several accounting software programs help with this, or you can use old-fashioned pen and paper – though, make sure you keep the latter in a safe place where it won’t get damaged or lost. Some people even choose to have a separate bank account and credit card for business expenses.
Some possible deductions for gig drivers could include:
Again, it’s essential to consult a tax professional or refer to the IRS guidelines for the most up-to-date and accurate information. Keep accurate records of your business expenses and income to simplify the tax filing process.
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