How Washington Rideshare and Delivery Drivers File State Taxes
Washington State has no income tax. However, both the city of Seattle and Washington State levies a small tax on all businesses. They consider most self employed workers to being a small business, like all other states. In most states, small businesses can pass-through the income and you pay state and local taxes based on the tax rates. However, since there is no state and local income tax and there is one for businesses, rideshare and delivery drivers have to pay the business taxes.
Uber, Lyft, Postmates, Amazon, Instacart and other delivery drivers are all considered a small business and you will NEED to register your business with both the state and in Seattle if you live in King County. This is not optional since you owe taxes either way. If you don’t register, you’ll end up owing them either way and then you’ll have to pay penalties once they find out. Remember that Uber, Lyft, Postmates, Amazon, etc all issue 1099s, so it is a matter of time before the State of Washington and the City of Seattle find out about your business income.
Register for State of Washington Business License
So this process is pretty easy. You can go here to start your Washington Business License
The only thing you need to do is sign up for the business license with the endorsement “Taxi and Vehicles for Hire.” Technically, whether you drive on Lyft/Uber or deliver products on Instacart, Amazon, Postmates, you will need this endorsement. The state considers any driver for hire, whether its passengers or packages, to be a “vehicle for hire.”
You will need to list your personal auto policy on the next screen. List the insurance amount and effective dates. Make sure that you have an auto insurance that permits you to drive with Uber and Lyft. There may be a risk that the state notifies your insurance company about your driving with Uber and Lyft. I haven’t heard about an incident where an auto insurance company dropped a driver in Washington State because there are so many that covers rideshare drivers.
If you don’t see your insurance on the list, I have heard of other drivers not getting this endorsement and being just fine. Lyft and Uber will apply for your TLC permit, which is much more important than an endorsement on your Washington Business License.
They will also ask how often you want to pay your taxes. I somehow picked monthly but it worked out very well and I recommend picking the monthly taxes option. I explain this later in the post, but in short, it better deals with your income if it fluctuates a lot from month to month. There is almost no downside, other than having to keep much closer records of your income to report your income monthly.
Once you’re done, you’ll get a UBI number that you can put into your City of Seattle Business License. You will get your State Business License in the mail. You will need this piece of mail to register for your Washington State Revenue account to pay your taxes. As soon as you register for the business, the Washington State Revenue service will come after you for taxes. I didn’t know until I got a strong letter saying I owed taxes.
Register for City of Seattle Business License
Registering for the City of Seattle Business License is pretty easy as well. Click this link to register for the City of Seattle Business License.
Here are the steps you will need to complete:
- Legal name of your business (for sole proprietor, its just your name)
- Trade name for your business
- Business type (sole proprietor, corporation, partnership, LLC, nonprofit)
- Estimated Annual Revenue (you only need to know if you earn above or under 100k. Don’t lie since they know how much you make via 1099s, federal tax returns)
- Name of license holder
- Starting date in Seattle
- Main Location
- Business Description
- NAICS classification: this post from Shared Economy will help: Principal Business / Professional Activity (NAICS) Codes
- OPTIONAL – State and Federal business number (UBI for state, none for federal if you’re a sole proprietor)
Depending on your annual revenue, you will either file quarterly if you earn over $100k a year or yearly if you earn under $100k a year.
With this account, you can pay your City of Seattle Taxes.
Register with Washington State Revenue
First, you will need to set up your profile at the Washington State Revenue. You can’t do this without a piece of mail from Washington State revenue that you will get in a few days after you register. You will register with your name, email, phone number, login ID, Password, security question. The last step will ask if you want to add an account. I presume that you can have different accounts under the same profile for the difference businesses you run.
You will need this information from the letter from your Washington Business License:
- Your account number (UBI number)
- Pre-assigned Access Code (PAC) – you will receive this in a letter from the Washington Business License
Once you set it up, you can start paying your state taxes.
How to File your Washington State Business Taxes
Once you register with Washington Revenue Service and add your account, you can file your taxes. Once you file your taxes, there are three main categories to file your taxes in:
- B & O
- Public Utility
- Other Taxes
The two main ones Uber, Lyft drivers and delivery drivers need to know about: B&O and Public Utility.
First and foremost, you will file most of your earnings under Public Utility under Urban Transportation. For Lyft and Uber, this is your Gross Ride Revenue (before Uber commission). I spoke to a Washington State Revenue agent (she called me unfortunately) and she says its on the gross amount, not the net amount after Uber or Lyft commission. I think this is very unfair since there are no deductions we can take at the state level. If you take a look at allowed deductions, you will see that none applies to us. We can’t even take the mileage deduction. However, with some tricks below, you probably won’t owe that much anyway.
There is another category called Motor Transportation but this is taxed at a much higher rate. To file income in this category (which you don’t want to anymore), trips or deliveries that are more than 5 miles are considered in this category. I highly recommend filing all of it under Urban Transportation above.
Now, there is a rule in that if the total revenue in a given month (not sure about quarterly or annual filings) is under $2000 for Public Utility, then you don’t pay any taxes at all under all earnings. You still need to report it but you don’t pay any taxes for it.
The other main category that drivers need to know about is under B & O: Services and Other Activities. There are tax credits that can reduce your tax liability for B & O tax category. You can put any type of driving bonus in this category, such as referral bonuses, hourly guarantees, and any other non-driving bonuses.
How to Reduce Your Washington State Tax Liability
Here is the table for monthly filings for B&O Tax:
You can see that if you owe less than $70 in B&O section of your taxes, you won’t have to pay any B & O component of your Washington State Business tax. For the category of Services and Other Activities, $70 equates to $4666 in income. If you earned less than $4666 in B&O section of your state taxes, and less than $2000 in Public Utility, you don’t pay any taxes. You still need to report it, but you won’t have to pay any taxes for it.
My recommendation would be to try to reduce your Public Utility portion of your taxes as close to $2000 as possible. Remember that the Urban Transportation tax rate is much lower than the B&O section so it is best to keep most of your earnings here but you also want to take advantage of the $4666 worth of earnings that won’t get taxed under B&O. If you have a lot of bonuses (referral, hourly guarantees, etc), you can put them under B&O Services category and get some of that tax off your tax bill.
Unfortunately, tips are considered a wage, similar to that on the federal level, so that would come under Urban Transportation instead of Services.
How to File Your City of Seattle Tax
Once you fill in the appropriate starting date for your business license, it will tell you what outstanding forms you have to file. You may have missed one or two quarterly tax forms and may have to pay a small penalty for it. Click on the outstanding form to start filing your City Taxes for that period.
Again, there is two main categories applicable to Uber, Lyft, and delivery drivers:
- Services
- Transporting Freight for Hire
The tax rate is the same for both and there isn’t any tax deductions we can take, nor do we get tax credits for each of those categories. Here is what it may look like:
My recommendation is to put all the income under Transportation Freight for Hire. Filing income under services is a bit more complicated as there is a worksheet to fill out, but all you need to do is put in the gross income and net income in Seattle, like this:
The only reason why I would file under Services is to make it match my State taxes. In case they audit my records and see a difference, they may come after me on the city level to amend my tax filings, which would have no difference in my tax liability. It is much more important to get your taxes right on a state level since it will change your tax liability, depending on how you file your taxes.
Final Summary
The goal is to reduce your tax liability and most drivers should file under Urban Transportation on the state level and Transporting Freight for Hire on the city level. This will achieve the low tax rate. If you creatively use the B&O tax credits, you could save over $700 a year if you use the entire B&O Tax credit. You could save around $200 a year if you have Public Utility Tax under $2000 worth of monthly income.
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