Tax Tips & Rideshare Independent Contractors

Driving for Uber or Lyft can be a great way to earn extra income, but tax season can confuse new drivers. Rideshare drivers are independent contractors, so they don’t have taxes automatically withheld from their earnings. Instead, they must report their rideshare income and can take advantage of many tax expenses to reduce their income and tax liability. One of the best ways to lower your tax bill is by claiming every business expense available. Do Uber and Lyft take out taxes? Uber and Lyft do not withhold income or self-employment taxes from your earnings. As an independent contractor, you are responsible for setting aside money for Social Security and Medicare taxes and making quarterly estimated tax payments to the IRS if necessary. Who needs to pay estimated taxes? Anyone who expects to owe at least $1,000 in taxes from self-employment income must make quarterly estimated tax payments to the IRS. If you file your taxes with us, we can help you calculate and set up automatic estimated tax payments. Which Lyft and Uber tax forms do rideshare drivers receive? If you process at least 200 transactions with at least $20,000 in gross trip earnings, you will receive a Form 1099-K. If you earn at least $600 in non-driving earnings, such as referrals, on-trip promotions, or other incentives and bonuses, you will receive a Form 1099-NEC. Drivers may also receive a tax summary from the rideshare service detailing their ride payments, non-ride earnings, and business-related expenses such as fees and tolls. Uber and Lyft often provide these to drivers with their end-of-year statements. All these documents should be available to you by Jan. 31. Even if you do not receive a Lyft or Uber Form 1099, you must report all rideshare income on your tax return, so keeping your records is very important. Top tax deductions for rideshare drivers As a rideshare driver, your most significant tax deduction is typically for your car. The IRS allows you to deduct miles driven for business use, which includes: • Driving to pick up a passenger • Transporting a passenger to their destination • Driving between fares There are two methods for deducting mileage. The standard mileage deduction method allows you to deduct a set rate per mile driven for business. For 2025, the rate is $0.70 per mile. The IRS requires detailed records of all business miles, so it’s essential to keep an accurate mileage log or use a mileage tracking app (examples include MileIQ and Everlance) to keep track of your business-related driving. The actual expenses method allows you to deduct the specific car expenses associated with your rideshare business, such as gas costs, vehicle repairs, and maintenance. Depending on your situation, this requires more detailed record keeping but may lead to a bigger deduction. If you opt for the actual expenses method instead of the standard mileage deduction, you can deduct a portion of the costs related to your rideshare vehicle. Eligible vehicle expenses include: • Gas • Car registration fees • Oil changes • Routine maintenance and repairs • Car insurance • Car washes or detailing • Vehicle depreciation (only if your business use of the car is greater than 50%) • Lease payments or car payments To claim these tax write-offs, you’ll need to calculate the percentage of your car’s use for business-related purposes and keep detailed records of all expenses. If you only use your vehicle for business, your expenses are 100% deductible. If you financed your vehicle, you can deduct the interest paid on your car loan, even if you use the standard mileage deduction instead of the actual expenses method. You can also deduct any tolls and parking fees paid while actively driving for Uber or Lyft. However, you cannot deduct fees paid during personal trips, parking tickets, or traffic fines. Since your mobile phone is an essential tool for rideshare driving, you can deduct: • A percentage of your phone bill (proportional to business use) • The cost of your mobile phone (if purchased solely for business use) • Cell phone accessories used for business purposes, like chargers and mounts You can write off 100% of your phone expenses as a tax deduction if you use a separate business phone exclusively for rideshare services. If you also use your phone for personal use, it’s best to keep a log of your work hours to help you determine how often you use your phone for business purposes. You can deduct the fees and commissions charged by the rideshare platform as business expenses. Deductible fees can include: • Uber and Lyft commissions • Booking fees • Tolls paid through the app • Referral fees • Mileage tracking app subscription The year-end statements you get in the mail from the rideshare service should list any fees and commissions you paid. You can also view these figures via your online account or driver dashboard. Expenses related to passenger comfort and safety are deductible, including: • Music streaming subscriptions (if used for passenger enjoyment) • Extra phone chargers for guests to use • Bottled water and snacks for passengers • Seat covers or cleaning supplies to maintain a tidy vehicle • First aid kits • Jumper cables • Roadside assistance plans These costs qualify as business expenses provided they are for your rideshare work. If you are a self-employed rideshare driver, you can deduct your health insurance premiums, including coverage for yourself, your spouse, and your dependents. However, this deduction has some limitations: • If rideshare driving is your primary job, you can deduct the full cost of your health insurance premiums as an adjustment to income on your tax return. • If you have another job offering health insurance but choose to purchase your own plan, you may not be eligible for this deduction. • The deduction applies only to months when you were not eligible for an employer-sponsored health plan. It is essential to keep records of your health insurance payments so that we can determine the amount you are eligible to deduct. For any other questions about taxes on tips, we’re here to help. Call (631) 585-9698 for a free consultation to determine how we can best serve you–contact us today.