If you have a gig as a personal shopper or delivery driver, you need to know about taxes. Here’s a step-by-step guide.
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What services does this post apply to?
This post applies to Instacart shoppers, Shipt shoppers, Postmates Fleet members, and Door Dashers. It also applies to similar shopping and delivery services.
If you rideshare with Uber, Lyft, or similar services, check out this tax guide for rideshare drivers. If you deliver with Uber Eats, much of the information in this post applies to your tax situation, but Uber combines your tax information with the driver platform.
Are shopping and delivery gigs self-employed?
Note that some retail chains who offer their own services use their employees rather than independent contractors. In addition, some states, such as California, are forcing certain gig jobs to be reclassified as employee positions. If you’re an employee, this post does not apply to you.
Does it matter if you’re full-time or part-time?
Unlike an employee position where you might qualify for different benefits based on your hours, independent contractor positions don’t really have a distinction between full-time and part-time. It’s really just a matter of how much money you make.
Does it matter if you’re a full-service shopper, store shopper, or only do the deliveries?
Some stores may use their own employees for certain tasks, while others will use independent contractors for the entire process. What’s important is the agreement you signed.
Different positions may have slightly different tax situations, though. For example, if you shop and deliver groceries, you could have mileage deductions for deliveries, but if you only shop, you likely wouldn’t have a mileage deduction.
What tax forms do shoppers or delivery drivers get?
Depending on the platform, you may receive a 1099-NEC or 1099-K. These do the same thing but vary based on how you get paid. A 1099-NEC is when you get paid directly from the platform. A 1099-K is when they use a third-party payment service such as PayPal or another service they’ve partnered with.
In order to receive your 1099, you need to provide a W-9. Most platforms won’t let you start until you do. This is similar to a W-4 except that W-4s are for employees and W-9s are for independent contractors. It is also a simpler form, because you’re responsible for your own taxes.
By IRS regulation, all platforms must provide your 1099 by January 31st if they’re required to issue one to you.
How do you get your 1099 from Instacart?
Instacart sends their 1099s using Payable. If you don’t receive your 1099, contact Shopper support.
How do you get your 1099 from Shipt?
Shipt will notify you by email or the Shopper app when your 1099 is ready. They may also send it by mail. Contact Shipt support if you don’t receive it.
How do you get your 1099 from Postmates?
Postsmates sends 1099s by mail. Be sure to update your address if you move. If you need to file your Postmates taxes, you can request your 1099 here.
How do you get your 1099 from DoorDash?
DoorDash uses Payable to issue 1099s. DoorDash has their tax information here.
Can you file your taxes if you haven’t received your 1099?
Yes, your 1099 just tells you and the IRS what you made last year. If you already know how much you made, you don’t need the 1099 to file your tax return. You just enter the amount that would be on your 1099.
What taxes do drivers and shoppers pay?
What are self-employment taxes?
You also pay the full Social Security and Medicare taxes that both an employee and employer would pay. That’s a total of 15.3% for most people. (At a W-2 job, you pay 7.65% through your FICA withholdings and your employer pays the other 7.65%.)
What about state taxes?
If you’re in a state that has an income tax, you’ll also likely need to pay state income taxes on top of your federal income taxes. This would usually work just like any other income you have to pay state income taxes on.
In most states, you simply transfer the numbers over from your federal tax return. You’d then pay tax based on the net profit you already calculated.
How do you calculate an estimate of how much you’ll pay in taxes?
- _____ Earnings in the app
- _____ Cash tips
- _____ Deductible business expenses
- _____ Your profit = Line 1 + Line 2 – Line 3
- _____ Line 4 x 15.3% = Your self-employment tax
- _____ Line 4 x 73.88% = Your taxable income after the deduction for 1/2 of self-employment tax and the Qualified Business Income deduction
- _____ Look up Line 6 in your tax bracket to find the income tax you owe
- _____ Line 5 + Line 7 = Your total federal tax
Keep in mind that this is a rough estimate that doesn’t account for your other deductions or credits as well as any other income you have. If you don’t feel like doing the math, most people can get pretty close to what they’ll owe by setting aside 25-30% of their profits for taxes.
What counts as your income?
You have to report all the electronic payments you receive through the app plus any cash tips as income. You may be able to take deductions, but we’re not there yet. When your tax return asks for income, it means everything you got paid not after expenses.
Don’t try to not claim tips, either. Restaurant workers have tried all the tricks in the book such as trying to argue they’re gifts not income. The IRS said no.
When are your taxes due?
For nearly all shoppers and delivery drivers, you’ll pay taxes on what you earned from January 1st to December 31st each year. You’ll include the taxes on your Form 1040 due on April 15th. If you have a W-2 job or another gig, you combine all of your income onto a single tax return.
Do Instacart, Shipt, Postmates, DoorDash, or other platforms take out taxes?
Gig platforms don’t withhold or take out taxes for you. Plan ahead to avoid a surprise tax bill when tax season comes.
- To pay your taxes, you’ll generally need to make estimated tax payments. This is sometimes also known as quarterly taxes.
- W-2 employed individuals who do this as a side hustle also have the option to increase your withholding at that job to cover all of your taxes instead of making quarterly payments. You can also do a combination of increased withholding and quarterly payments.
What deductions can shoppers and delivery drivers take?
You can deduct your business expenses from your income on Schedule C of your tax return. You do not claim business expenses as itemized deductions on Schedule A. You don’t have to itemize to claim business deductions.
The most common tax deductions for delivery drivers and shoppers are:
- Mileage. For most people, taking the standard mileage rate gives the biggest deduction. There are many apps you can use to automatically track your miles. If your actual car expenses are larger and you spend the time to keep track of them, you can deduct your actual expenses instead. You can deduct trips from the store to your customers and back to the store. You can’t deduct your first trip from home to the store or your trip home from your last customer. Those first and last trips are considered commuting, rather than business, miles and aren’t deductible.
- Cell phone. You can deduct your cellphone plan but only the portion of it you use for business. You’d need to have a way of tracking your data, minutes, and texts and figuring out what percent of your phone use is business versus personal. You can deduct the business percent of your bill.
- Extra bags, boxes, coolers, etc. If you buy equipment to make shopping or delivery easier, it’s potentially deductible. For these items, you really want it to be something you use only for business and never for any personal uses. You can try for a partial deduction if you also use it for personal reasons, but the IRS could get picky and deny it.
Do you qualify for the 20% QBI deduction?
Since you’re an independent contractor and classified as a sole proprietor, you qualify for the Section 199A Qualified Business Income deduction. For most Shipt and Instacart shoppers, you get a deduction equal to 20% of your net profits. That means you’d only pay income tax on 80% of your profits. You don’t get the QBI deduction on the 15.3% in self-employment taxes.
Can you deduct your retirement contributions?
Your profits count as earned income that you can put into a Traditional IRA or Roth IRA. If you want to boost your retirement savings, you can open a SEP IRA or solo 401(k). This allows you to make tax-deductible employer contributions of up to 20% of your profits. If you don’t have a 401(k) at work or choose not to use it, you can also make your full employee contribution. Note your 401(k) employee contribution limit applies for all of your 401(k)s combined not per job.
Does the tax-exempt card mean you don’t have to pay taxes?
There’s been some confusion over whether Instacart or Shipt are tax-exempt because you need to use a tax-exempt card while shopping. This applies to sales tax and does not affect your income tax on your earnings.
Sales tax is only charged to the final customer. Because the customer pays applicable sales taxes on their final total with Shipt or Instacart, Shipt or Instacart doesn’t pay sales tax to the grocery store like a direct retail customer does.
How do you file your tax return?
If you’re comfortable with the basics of this information, you may be able to file your own tax return. TurboTax, TaxAct, TaxSlayer, Liberty Tax, and other software do a good job of walking you through how to file for gig economy jobs. If you qualify for IRS Free File, you may be able to avoid the extra fees the tax prep software companies sometimes charge for self-employment income.
If you don’t feel comfortable filing on your own, you may wish to hire a tax professional (CPA or EA) for tax advice at least for the first year. You can switch to filing on your own in later tax years if you decide you’re ready.