Favor taxes work a little differently than larger services like Instacart and DoorDash. Here’s what you should know.
What’s on your Favor 1099?
Favor issues its Runners a Form 1099-K at the end of the year. Starting in 2022, you’ll get this form if you earn $600 or more with no minimum number of transactions (some Favor documents still have the old $20,000 and 200 transactions rule).
The most important thing to note with Favor is that they include the cost of your customer’s purchase on your 1099-K. So if you pick up a $100 order and get paid $25, $125 will get added to your 1099-K gross income.
This is a little unusual since you use a Favor Runner Card, not your own money, to pay for customer purchases. Most other gig apps only include your pay on your 1099.
The good news is that the cost of your customers’ items is 100% deductible, and you only have to pay taxes on your actual earnings.
Reminder: Even if you don’t receive a 1099-K, your Favor income is still taxable.
How do you figure out how much you made with Favor?
To find out how much you actually made through Favor, you can log in to your account and check your deposit history. Make sure it’s showing January 1st to December 31st of the tax year you’re filing for.
In my view, the more correct way to complete your Schedule C is to use your total deposits not the amount from your 1099-K. Since you’re paying with a Favor credit card and never get the money you’re spending with your customers, I have no idea why Favor thinks that money should go on your 1099-K.
Your Schedule C normally includes the money YOU received. If Favor was having you pay expenses and reimbursing you, you’d need to include the reimbursements as gross income and deduct the expenses. If you’re not receiving the money, it shouldn’t be on your 1099-K.
The problem is that the IRS is going to see your 1099-K and might ask why you didn’t report the full amount.
The easier way to do your taxes is to report the full amount from your 1099-K and then take a deduction for customer purchases. This might fall under Cost of Goods Sold or another appropriate line.
Make sure you keep your Favor transaction records showing how much you got paid and how much was spent on customer items. When you claim a deduction, the IRS requires you to keep proof. If the IRS challenges this deduction, make sure you have your earnings record so you can explain what Favor actually paid you and why you filed your taxes the way you did.
No matter which way you choose to report your income, your gross profit and taxes will be the same.
What other expenses can Favor Runners claim?
Your biggest tax deduction as a Favor delivery driver will usually be mileage.
You can choose between the standard milage deduction or actual expenses method depending on which one works best for you.
If you use the standard mileage deduction, you can deduct a fixed amount per business mile that you drive. If you use actual expenses, you’ll need to track all of your expenses like insurance, gas, and maintenance. You’ll also need to prorate your deduction according to your percentage of miles for business versus personal driving.
Here are the current standard mileage rates:
- 2023: 65.5 cents per mile
- 2022 July through December: 62.5 cents per mile
- 2022 January through June: 58.5 cents per mile
- 2021: 56 cents per mile
Most drivers come out ahead using the standard mileage deduction, but you should check the cost of ownership of your car.
You may also be able to take deductions for other business expenses like mileage app subscriptions or food delivery bags.
What do Favor drivers pay in taxes?
Favor Runners pay federal income taxes according to their tax bracket. Most Runners will also owe 15.3% in self-employment taxes.
Since Favor is currently limited to Texas, which has no state income tax, you won’t have to worry about state taxes.