Do Uber and Lyft Drivers Pay State Business Taxes?
After talking with some drivers about taxes, some asked if they had to pay state business taxes. This was something I haven’t really looked into before as in Massachusetts, there isn’t any kind of tax on small business and S-corporations below a certain threshold. I know that California has a franchise tax but I wasn’t sure about the other states. I spoke with a few CPAs and done some research on various business tax laws around the country. Some cities have their own taxes so watch for those as well. This post will only cover state taxes but make sure that there are no county or city taxes on your business.
It was really interesting to see how each state view business entities. There are a few states that don’t recognize S-corporations at all, while some allow the pass-through income for S-corporations but levies a tax on all LLC.
Here are the common business classifications for rideshare drivers:
- Sole Proprietor – no registration needed and the business uses your SSN
- Single person limited liability companies (LLC) – often taxed as personal income, same as the federal tax rules. Requires paperwork and registration with your local city and state. you will get a separate tax number to use.
- S corporation: In most states, it doesn’t make much sense to apply for it due to the paperwork required to maintain a S-corporation and the need of a CPA to help you keep track of your finances. Some people may elect for this entity for their own tax purposes. If you meet the federal tax law requirements to operate as an S corporation, the IRS allows your business to “pass through” its income to the shareholders. This means that your business will not pay any corporate level income tax. However, you’ll have to claim your entire share of the business income on your personal federal income tax return even if you did not take any money out of the business.
In most cases, you will not need to pay state business taxes. In most cases, your Lyft and Uber income will flow through your entity (whether it is a sole proprietorship, LLC or S-Corp) and it will show up as personal income.
Here are the states that need some kind of business tax:
- Connecticut and Oregon have a business entity tax for S-corporations (flat fee)
- California, Washington DC, Texas, Vermont, and Washington state have a franchise tax on Single person LLCs and S-corporations
- Florida taxes all LLCs but S-corporations and sole proprietorship can have income pass through to the individual(s)
- New Hampshire taxes all business entities (sole proprietorship, LLCs, S-corporation)
- Arizona and Massachusetts have various income limits for S-Corporation before they are taxed
- New York taxes S-corporations because they are not recognized in the state. There is also a tax on LLCs and S-corporations in New York City, so you may have taxes on a city and state level.
- Pennsylvania and Tennessee has a tax on S-corporations
I have a much more comprehensive list of the different tax laws by state in our Comprehensive Rideshare Taxes Course in addition to other tax related material so go on over and check it out!Have more questions about Uber or Lyft? Head on over to our Rideshare Driver Training Course!