If you work for Instacart, it shouldn’t be any surprise that you have to pay taxes. If you’re a smart shopper, you’ll find ways to pay less in taxes while making more money. This post will teach you what you need to know to file your tax return and find ways to lower your tax bill.
Does shopping for Instacart count as self-employed?
Instacart shoppers are typically independent contractors or self-employed. Your taxes are similar to a sole proprietor business owner. There are a few exceptions.
- Some stores use their employees to pick orders or bring them out to customers who opted for pickup instead of delivery. If this applies to you, you’re an employee of that company rather than Instacart.
- Instacart also hires employee shoppers who work exclusively inside of stores. If you took a job in this position, you’re an employee, not an independent contractor.
- There are ongoing legal battles in states like California arguing that gig workers are employees rather than self-employed people. In some cases, judges have ruled that gig workers are employees and then been overruled, so the workers are back to being classified as contractors. Make sure you’re aware of how shoppers are classified in your state.
This post primarily discusses the self-employment tax rules for independent contractors. Employees have a much easier time filing their income tax returns. They don’t have to pay estimated taxes and generally aren’t allowed to deduct any expenses.
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 have a distinction between full-time and part-time. It’s just a matter of how much money you make.
Does it matter if you’re a full-service Instacart shopper, store shopper, or only do the deliveries?
Some stores may use their employees for certain tasks. Others will use independent contractors for the entire process. What’s important is which specific Instacart shopper position you accepted with the company that is paying you.
Different positions may have slightly different tax situations, though. For example, if you’re a full-service shopper who shops and delivers groceries, you could have a mileage deduction. If you only shop, you likely wouldn’t have a mileage deduction.
What tax forms do Instacart shoppers get?
Instacart sends its independent contractors Form 1099-NEC. Form 1099-NEC is a new name for Form 1099-MISC. You will get an Instacart 1099 if you earn more than $600 in a year. The IRS requires Instacart to provide your 1099 by January 31st each year.
If you’re in an employee position, Instacart will send you a W-2 by January 31st.
When you join Instacart, they will ask you to provide either a W-9 or W-4. W-9s are for independent contractor positions and tell Instacart your legal name, address, and tax identification number. W-4s are for employee positions and also let you set your tax withholding. There is no tax withholding for independent contractors (more below).
How do you get your 1099-NEC from Instacart?
Instacart sends their tax forms using Payable. If you don’t receive your Instacart 1099, contact Shopper support. Remember you may not get a 1099 if you made less than $600 during the previous calendar year.
Can you file your Instacart taxes if you haven’t received your 1099?
Yes, your 1099 just tells you and the IRS what you made last year. You don’t need the 1099 to file your tax return if you already know how much you made. You just enter the amount that would be on your 1099.
Some tax software asks you to enter your 1099s. This is just to help it do the math for you. It doesn’t matter if you enter your income as a 1099 or if you enter it as business income not reported on a 1099. The reason is that your tax return only shows your total business income on a single line. Your tax software only asks for things separately to make sure you don’t forget anything.
If you want to enter a 1099 for Instacart before you have it, you’ll need the following information.
- Your total earnings from January 1st to December 31st. You can find this in your shopper account or keep records in your own bookkeeping app.
- Instacart’s official name is Instacart (other delivery companies use different legal names on their tax returns).
- Instacart’s EIN is 46-0733335.
- Instacart’s business address is 50 Beal, 6th Floor, San Francisco, CA, 94105.
What taxes do Instacart shoppers pay?
Self-employment income is subject to income taxes according to your tax bracket the same as any other income. You’ll also pay self-employment taxes. All federal taxes are on your taxable business profit after your business deductions.
What are self-employment taxes?
You pay the full Social Security and Medicare taxes that both an employee and employer would pay. That’s a tax rate 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%. This includes shoppers who are employees.
What about state taxes?
If you’re in a state with 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.
What about city taxes?
Some cities also have their own income tax. If that applies to you, you’ll also need to pay city taxes.
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
- _____ Line 8 x 25% = What you should set aside for quarterly taxes
Keep in mind that this is a rough estimate that doesn’t account for your other deductions or credits or any other income you have. It also depends on your filing status and whether your spouse has income. 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 tips are gifts not income. The IRS said no.
When are your taxes due?
Instacart shoppers typically file personal tax returns by April 15th for the income you earned from January 1st to December 31st the prior 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 your income into a single tax return.
Does Instacart take out taxes?
Instacart does not take out taxes for independent contractors. Plan ahead to avoid a surprise tax bill when tax season comes.
- To pay your taxes, you’ll generally need to make quarterly tax payments (estimated taxes).
- If you do Instacart for extra cash and have a W-2 job, you 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 expenses can Instacart shoppers deduct?
You can deduct your business expenses from your income on Schedule C of your tax return. Business expenses are not itemized deductions on Schedule A. You don’t have to itemize to claim business deductions. If you don’t itemize for your personal deductions, like charitable donations, you still get the standard deduction and your business deductions.
The most common tax deductions for gig workers are:
Taking the standard mileage rate gives the biggest deduction for most people. There are many apps you can use to automatically track your business miles. If your actual car expenses are larger and you spend the time tracking 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. Be sure to save your mileage logs in case the IRS audits you.
Cell phone expenses
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 bills are for business purposes versus personal use. You can deduct the business percent of your bill.
Food delivery bags, boxes, coolers, drink carriers, etc
If you buy gadgets or equipment to make shopping or delivery easier, it’s potentially deductible. For these items, you really want them 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. It’s one of those things where you can be technically correct, but it may not be worth fighting.
Health insurance premiums
If you buy health insurance and aren’t eligible for health insurance coverage through an employer or certain other sources, your monthly health insurance premium is generally deductible. This is a separate form from your Schedule C. Be sure to answer your tax software’s questions about health insurance.
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 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 is 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 Instacart, Instacart doesn’t pay sales tax to the grocery store like a direct retail customer does.
What tax software should you use to file your tax return?
There are many tax filing software providers you can use to file your Instacart taxes. They range from free DIY options to online accountants who will do everything for you.
Frequently Asked Questions
Instacart usually won’t take out taxes since you’re an independent contractor and have to pay estimated taxes. The exception is if you accepted an employee position.
You can deduct your business miles. That’s usually all your driving except your house to your first stop and your last stop to back home.
If you’re an independent contractor, you get a 1099-NEC form instead of a W2.
Yes, tips are taxable. Tips you receive in the platform should be included in your 1099 but are taxable even if they’re not. Cash tips also have to be reported.
How much you pay depends on how much total income you have from all sources. You will pay 15.3% in self-employment taxes plus 0 to 37% in income taxes.
You can write off ordinary and necessary business expenses. This includes your business mileage and special tools you need to buy for your business.
Doing taxes for Instacart isn’t hard, but you need to take the time to learn how to do it. Make sure you keep track of your deductions, like your mileage and other business expenses. You can file your taxes on your own, but you can also use a tax preparer the first time you file if you want to make sure you do it right.