In the beginning, Uber promised its drivers that they would easily reach income levels as high as $74,000 a year (for Uber-X drivers who drove entry-level cars such as the Prius or the Camry). Now, though, the company has toned down its estimates. Once you pay the 20% commission that Uber asks for, you make $19 an hour on average (a pay rate that could require 80-hour workweeks). Nevertheless, if you are one of the 160,000 Uber drivers around the US, you probably make a reasonable income. You do need to think about the taxes that you owe the IRS.
Read: If You’ve Been Unemployed This Year, Here Are Your Tax Tips
First, Understand the Nature of Your Employment
If you’re transitioning from a full-time job where taxes were withheld, your tax obligations as an independent contractor are different. You are considered self-employed. For your income, you’ll receive a 1099-K form, and for referral bonuses, a 1099-MISC form.
You must report your taxable income using a 1040 form and detail your expenses on a Schedule C. If you drive for multiple companies, like Uber and Lyft, you need to keep separate Schedule Cs for each business’s income.
You Will Need to Distinguish Between Net Revenue and Net Income
On some rideshare services such as Lyft, you get a clear statement from the company of the income to report to the IRS. Uber is different. The company’s 1099 form reports both gross and net incomes. Drivers need to sort out taxable income themselves.
You’ll Need to File Business Income
Even tax software packages such as H&R Block and TurboTax do not clearly let you know how to file if you are a rideshare driver. The truth is, even if you’ve never expressly set your involvement with Uber up as a business, you do need to file business income under Schedule C. It’s important that you classify all rideshare income as business income.
Keep Detailed Records of All Business Expenses
When you are a rideshare driver, you have many business expenses to keep track of — car payments, fuel, insurance and repairs, among others. To claim deductions for such expenses, you need to keep a running record of all expenses as they happen. It won’t do to make a hasty log of all major expenses right before tax time.
Start Saving for Your Taxes From Day One
As Uber drivers, you don’t have income withheld at source, so it’s crucial to set aside money from each payment to cover your tax obligations. Online calculators can help estimate what you need to save.
If you expect to owe more than $4,000, it’s important to pay estimated taxes quarterly. Failing to do so can result in penalties. While gig economy workers may eventually have tax-preparation products designed specifically for them, currently, Uber drivers must find the necessary tax information on their own.