Do the Math Before Quitting Your Job to Drive for Uber
Many people drive for Uber as a part time gig but some drivers make more than their other jobs, so they decide to quit their other part time or full time job and drive for Uber and Lyft exclusively. The major difference when you drive for Uber full time is that now you’re an independent contractor, which means you will need to pay for these things yourself:
- Medical Insurance (my employer pays $5600, I pay $700 a year, so $6500 a year in total)
- Dental ($200 a year, preventative)
- Vision ($200 a year)
- Life Insurance (company often provides workers compensation and life insurance if traveling on business)
- Payroll taxes (1/2 Self Employment + 1/2 Medicare ~ 7.6%)
Full time salaried jobs often come with these as well (some hourly jobs have some of these as well):
- 14 paid day off (vacation and sick days)
- 9 paid holiday days
The one thing that independent contractors get that full time employees with W2 don’t are tax deductions for commuting. This can be a large deduction for some people. On average, the average automobile commuter spends 22.8 minutes commuting a one-way distance of 12.6 miles, or 25.2 miles roundtrip. Considering 5 workdays a week for 48 weeks (factoring in for vacation and sick days), that is 240 days, which turns into 6048 miles at a calculated cost of 39 cents per mile, based on realistic calculations on car depreciation and operating cost.
Comparing Full Time Job (W2) to Independent Contractor
For this analysis, I am setting a full time job salary at $50k a year. If you can duplicate about that income if you drive on Uber full time (40 hours a week, but realistically 50 a week), you would need to offset about $7k in employer paid insurance alone, and payroll taxes of about $3k a year. Health insurance is tax deductible but you will still need earn the money to pay for it. Vacation and sick days account for 10% of your income, so about $5000 worth of time off.
As an Uber driver, I earn roughly about $1.50 per mile driven after their commission. This figure includes miles before and after the trip, so it includes all miles driven for Uber and all miles I list as a tax deduction. I set up a spreadsheet on that calculation, including a mileage tax deduction, federal tax rates and self employment taxes. In order to make the same amount of money, an Uber driver will need to drive about 48,367 miles in order to generate $72,550 in net income from Uber or Lyft after their respective commissions.
The cost of operating a car is different for someone who drives 12000 miles as in the full time job scenario than as an Uber driver that may drive over 40000 miles. For this analysis, I only focused on commuting miles for the full time job, but the cost per mile is calculated based on driving 12k miles a year. The Uber or Lyft driver will get a $26,000 tax deduction, but at a real out of pocket cost of about $11,600. This includes insurance, tires, maintenance, gas, depreciation and finance charges based on a 1% interest rate. An Uber driver will need to spend about $9,600 more than an “average” driver in order to make their income.
- To learn more about how to calculate your tax liability, check out my Rideshare Taxes Course for Uber and Lyft Drivers!
The full comparison table is below:
|Full Time Job W2||Independent Contractor|
|Cost Per Mile of Car||$0.37||$0.24|
|Cost of Operating Your Car||-$2,237.76||-$11,608.00|
|Paid Time Off||Included||-$5,000.00|
|Self Employment and Medicare Tax (Payroll Taxes)||-$3,700.00||-$6,871.94|
Based on the calculations, benefits, costs, and various tax deductions, an Uber driver would need to earn about $22.5k more a year from Uber than your normal full time job in order for it to make financial sense to quit your job. As a percentage basis, you will need to earn about 45% more than your full time job for Uber to order to pay for health insurance and cost of driving for Uber.
Below are the largest cost differences between a normal full time job and that of Uber and Lyft:
- Cost of driving additional miles: $9,700
- Health Insurance: $5,600
- Paid time off: $5,000 (10% of your yearly salary)
- Self Employment + Medicare Taxes: $3,100
This analysis was done for a well paying average full time job. There are many people who work hourly jobs that do not get vacation/sick days or health insurance. These workers are the most likely to switch to Uber because there is nothing left to benefit from their full time job. Some workers make about the same on Uber than their other job and quit because of flexibility or of boredom of their other job.Have more questions about Uber or Lyft? Head on over to our Rideshare Driver Training Course! Driver Promotions