If you do work for Uber, TaskRabbit or other similar companies, you probably already know that you’re an on-demand worker. But in the midst of earning a living, paying your bills and providing the best customer service you can, you may have missed a few important facts about paying your taxes. But while taxes are probably the last thing you want to dive into at the moment, taking a few minutes now can help you avoid costly penalties from the IRS in the furture.
So let’s get started. The first thing you need to know is that, for on-demand workers, freelancers and contractors, the IRS expects you to pay what are known as quarterly estimated taxes. Check out the infographic and questions below for the information you need to know.
What Are Quarterly Taxes?
While W-2 employees have their taxes automatically withheld from their paychecks, self-employed individuals do not and are paid the total amount they’ve earned. To reconcile this, the IRS requires the self-employed to make quarterly estimated tax payments.
Do I Need to Pay Them?
If you’ll owe more than $1,000 in taxes for the current tax year, the IRS requires you to make quarterly estimated tax payments. As a general rule of thumb, if you make more than $15,000 in self-employment income, you’ll probably need to pay quarterly taxes.
Due dates fall on the 15th on the following months: June, September, January and April (which is also the year-end tax deadline). Use form 1040-ES to make your estimated payments.
What Happens If I Don’t Pay?
If you think you won’t have to pay quarterly but end up owing more than $1,000 in taxes, you’ll get a penalty plus fined interest on the amount of the missed quarterly penalty. If you pay quarterly but end up owing less than $1,000, don’t worry; you can just apply the payment to next year’s taxes.
If you haven’t paid your estimated quarterly taxes so far this year, pay them right away. Penalties can incur interest, which is calculated based on how late your payments are, so don’t wait until filing your year-end taxes in April. Refer to this IRS guide for more information.
What’s a 1099?
IRS Forms 1099 are used to report income sent to freelancers or independent contractors.
Uber issues Forms 1099-K to all drivers who have given a trip in the past tax year. It will include a summary of all driving-related activities, such as Gross Fares, Uber Fees, Rider Fees and Tolls. Uber issues 1099-MISC for non-driving-related activities, such as driver referral bonuses.
Does Uber Deduct Taxes When They Pay Me?
Uber will pay you under a 1099 independent contractor classification. No taxes are withheld from your payments so you’ll need to report the income you’ve earned and pay taxes accordingly.
How Do I Report Money I’ve Earned With Uber?
You’ll need to use a Schedule C to account for personal business income that you make with Uber. You’ll record your earnings and expenses on the Schedule C, which is where you calculate your business profits or losses.
How Do I Take Deductions?
Self-employed individuals are allowed to deduct regular business-related expenses from their taxable income. These business expenses are recorded as deductions on the Schedule C to offset your business income. Some common deductions for Uber drivers include:
- Standard Mileage (multiply business mileage by standard mileage rate)
- Car Payment
- License, Title and Registration
- Gas (if larger than the standard mileage deduction)
- Vehicle Maintenance
- Auto Insurance
- Food and Drinks for Passengers
- Car Washes
- Parking Fees
- Wireless Plan
This All Seems Pretty Complicated. Is There an Easier Way to Take Care of All This?
Figuring out how much you’ll owe can be tricky and cumbersome. For an easier way to calculate and pay your quarterly taxes, track your driving finances and maximize your deductions, try a free 30-day trial of QuickBooks Self-Employed. Designed specifically for self-employed professionals’ tricky finances, QuickBooks Self-Employed simplifies your taxes so you can focus on getting back on the road and earning more cash.