Do Lyft and Uber Drivers Pay Taxes?
[For additional tax resources, check out my newly launched online course for Uber, Lyft and Sidecar Taxes!]
As a self employed employee, you are responsible for your own taxes. Lyft and Uber pays you your full wage and its up to the driver to pay their own taxes.
The Internal Revenue Service (IRS) requires you to make quarterly estimated tax payments for calendar year 2014 if both of the following apply:
- you expect to owe at least $1,000 in federal tax for 2014, after subtracting federal tax withholding and credits, and
- you expect federal withholding and credits to be less than the smaller of:
- 90% of the tax to be shown on your 2014 federal tax return, or
- 100% of the tax shown on your 2013 federal tax return (only applies if your 2013 tax return covered 12 months – otherwise refer to 90% rule above only).
Some people may not be required to pay estimated taxes as this year they are paying 100% of the tax shown last year.
When do I need to pay Estimated Taxes?
Here is are some quick calculations to estimate when you will need to pay estimated taxes:
- Without deductions, a tax payer in the 25% marginal tax rate will have a total tax rate of about 40% when you include in the 15% self employment tax (made up of social security and medicare)
- With a 40% tax rate, if you made over $4000 take home from Uber or Lyft after their commission, you will need to pay estimated taxes.
- Figuring for deductions, my marginal tax rate is only 25% when I deduct about 1/3 of my income due to the standard mileage deduction of 56 cents a mile.
- With a more realistic 25% total tax rate, if you made over $5000 take home from Uber or Lyft after their commission, you will need to pay estimated taxes.
- The above figures are gross estimates and does not apply to every driver. If you are unsure how to make these calculations, speak with your local licensed tax preparer.
Estimated taxes need to be paid quarterly or there is a small penalty at the end of the year. Below are the payment dates for each quarter:
| Payment Period | Due Date |
|---|---|
| January 1 – March 31, 2014 | April 15, 2014 |
| April 1 – May 31, 2014 | June 16, 2014 |
| June 1 – August 31, 2014 | September 15, 2014 |
| September 1 – December 31, 2014 | January 15, 2015* |
*You do not have to make the payment due on January 15, 2015, if you file your 2014 tax return by February 2, 2015 and pay the entire balance due with your return.
How do I make federal quarterly estimated payments?
The IRS provides various methods for making 2014 quarterly estimated tax payments:
- You may credit an overpayment on your 2013 tax return to your 2014 estimated tax;
- You may mail your payment with a payment voucher form, Form 1040-ES;
- You may pay by phone or electronically using the Electronic Federal Tax Payment System (EFTPS);
- You may pay via electronic funds withdrawal with your 2013 e-filed return
- You may pay via debit or credit cards (for a fee)
You can avoid making estimated payments if you increase your W-4 withholding amounts by the proper amount. This is only for drivers who also have a job that gets a W2 at the end of the year.
What if I do not pay enough federal income tax in a timely manner for the calendar year 2014?
If you do not pay enough tax in a timely manner either through withholding or making estimated tax payments, you may be required to pay a small penalty of about 3 percent (Note, it is not a simple calculation. You need to calculate it for every quarter as the amount can change every quarter, or goes up every quarter if you didn’t pay it at all all year).
The rates for the calendar quarter beginning Jan. 1, 2014 will be:
- three (3) percent for overpayments [two (2) percent in the case of a corporation];
- three (3) percent for underpayments;
- five (5) percent for large corporate underpayments; and
- one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.
Please refer to IRS Publication 505, Tax Withholding and Estimated Tax, for a detailed discussion of the underpayment penalty, including exceptions to this penalty.
How do I get more information about quarterly estimated tax payments?
For additional tax resources, check out my online course for Uber, Lyft and Sidecar Taxes!
Please refer to IRS Form 1040-ES Instructions and IRS Publication 505, Tax Withholding and Estimated Tax, for more information about quarterly estimated tax payments or see a licensed tax preparer.
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