If you drive for Lyft, you’re responsible for tracking and paying your own taxes. Here’s what you need to know about Lyft driver taxes.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
Are you an employee? Do you get a W2 from Lyft?
Some states have passed laws or had lawsuits ruling that Lyft drivers are employees. If you’re in one of those states, you should receive a W-2.
Does Lyft provide a 1099?
Lyft follows a unique strategy as part of their efforts to prove that drivers are independent contractors not employees. Lyft says it’s just a middleman and payment platform, and it’s the customers who are hiring and paying you.
So Lyft provides a 1099-K for your ride earnings and tips. They send a 1099-NEC for payments from the platform like referral bonuses and special incentives. That means you might get two tax forms from Lyft.
What’s the difference between a W-2, 1099-MISC, 1099-NEC, and 1099-K?
- IRS Form W2 reports employee wages. You will only get a W-2 if you’re in a state that says drivers are employees.
- IRS Form 1099-NEC reports independent contractor income that the company you contracted with paid directly to you. This income used to be on Form 1099-MISC along with other types of income. The IRS now uses Form 1099-NEC instead for their tracking purposes. The IRS requires a 1099-NEC when you earn $600 or more from a payer.
- IRS Form 1099-K reports independent contractor income that you received from an electronic payment network such as PayPal, Stripe, or another system. Again, Lyft is saying they’re the payment network when it comes to rider payments. Up until 2021, you would only get a 1099-K if you earned at least $20,000 AND had 200 or more transactions in a year. Starting with 2022 (and tax returns filed in April 2023), 1099-Ks will change to a $600 minimum with no number of transactions the same as form 1099-NEC.
How to Find Your Lyft Tax Documents
Lyft will post your 1099 in the Tax Information tab of your Driver Dashboard by January 31st. You can still access your tax documents even if your Lyft account is no longer active. If you didn’t earn the minimum amount to receive a 1099 but need to know how much you earned to include on your tax return, you can use your Annual Summary. Lyft uses both 1099-NEC and 1099-K forms depending on your income.
What’s your income?
Your income includes all the money you receive for your ridesharing services. This includes both cash and electronic payments whether or not you receive a 1099.
Tips are taxable self-employment income the same as your fares. Waiters and taxi drivers have previously tried to have tips taxed as non-taxable gifts and failed. Trying to say that tips are gifts could result in heavy fines or tax evasion charges for taking a frivolous or fraudulent position.
Cleaning fees, toll reimbursements, and similar payments are also part of your income. You can separately deduct the corresponding expenses. If the fee is greater than the expense, your taxable income increases. If the fee is equal to your taxable expense, your taxable income usually won’t change, but you still need to report the income and expense separately. If the fee is less than your expense, the loss on this item can reduce your other taxable income.
If you took out a PPP loan, remember that Congress said PPP loan forgiveness would not be taxable income as part of the COVID-19 relief package.
Can you deduct mileage?
You can generally take a deduction for all mileage while you are active on the platform. This includes when you have a fare in your car, driving to pick up a fare, and driving around trying to find a fare.
If you turn your app off to head home or don’t turn your app on as soon as you leave home, the miles between your home and where you start/finish working would be nondeductible commuting miles. Even when you have the app on, there is debate on whether mileage between your home and first or last fare counts as commuting or business miles.
Note that many ridesharing apps only track your miles while the meter is running. You should track miles on your own to account for the off-meter miles. You can either download a separate mileage tracking app or write down your odometer reading at the start and end of your shift.
What expenses does the standard mileage deduction cover?
The standard mileage deduction covers the expenses necessary to keep your car running. This includes:
- DMV fees
You can choose to track all of these expenses separately and claim that amount instead of taking the standard mileage deduction. This requires you to keep track of all of your receipts and why they were necessary business expenses. In addition to saving that hassle, most people with consumer cars come out ahead taking the standard mileage rate.
Can you deduct your meals while you’re working?
No. Stopping for lunch in the middle of your shift does not make it a business expense. You can typically only deduct meals while entertaining a client or on a multi-day trip away from home.
Lyft Driver Tax Checklist of Deductions
The following items are generally allowed deductions.
- Fees to apply for a platform or for a background check.
- Water and candy you provide to your riders.
- Transaction fees (if your income was reported as the gross amount before fees instead of the net amount after fees).
- Signs or lighting to identify you as a rideshare driver.
- Business software you use to help you find the best times to drive.
- Parking fees if you have to pay to pick up a passenger.
The following items are generally not deductible because they are also for your own personal use.
- Cellphone bills.
- Phone chargers, cellphone mounts, and similar accessories.
- Dash cams (but they’re still useful to protect you from false accusations by riders).
- Floor mats and other improvements to your car.
Some of the above items could be partially deductible if you can prove to the IRS what portion of the expense was for business use. This is hard to do because so many people try to deduct personal expenses, and the IRS auditor will be very skeptical.
Are Lyft drivers eligible for the 20% Qualified Business Income deduction under Section 199A?
Yes, rideshare drivers are eligible for the new 20% deduction. This means that you will effectively pay income tax on 80% of your net profit instead of 100% of your net profit.
If your total income from all sources for tax year 2021 exceeds $164,900 as a single filer or $329,800 as a joint filer, your deduction may be reduced or eliminated. These amounts go up each year based on inflation.
How much do Lyft drivers pay In taxes?
Expect to pay at least a 25% tax rate. This includes 15.3% in self-employment taxes for Social Security and Medicare. It also includes your income tax rate depending on your tax bracket.
If you live in a state with income taxes, you’ll also need to file a state tax return.
Can Lyft drivers open a retirement account to lower their tax bill?
Your net profit counts as earned income. This allows you to contribute to a Traditional or Roth IRA even if you don’t have other income (e.g., students or retirees). As a Schedule C 1099 filer, you may also open a SEP IRA or Solo 401(k). These small business retirement plans allow you to contribute up to 20% of your profits on a tax-deductible basis.
SEP IRAs are usually the easiest to open and have the lowest (or no) fees. The advantage to a Solo 401(k) is being able to make up to $18,500 in employee contributions if you don’t have a 401(k) from a different job or if your main 401(k) has poor investment options.
How do Lyft drivers pay taxes?
Lyft does not take out withholding tax for you. Lyft drivers should make estimated tax payments each quarter. If Lyft driving is a small portion of your income, you may be able to increase your income tax withholding at your day job instead.
If you wait until April to pay, you could have to pay a penalty if you owe more than $1,000.
What tax software should you use to file your taxes?
|Cash App Taxes||TaxSlayer||TaxAct||H&R Block|
|Best For||100% free taxes||Lower cost DIY software||DIY with extra help||Full service tax preparers|
|DIY Software Cost w/ Business Income||$0||$47.95||$64.95||$109.99|
|State Tax Return||$0||$36.95/state||$44.95/state||$36.99/state|
|Live Expert Assistance for DIY Version||No||Included||Included||+$85|
|Full Service Tax Prep||No||No||Yes ($279.95)||Yes (Starting at $80)|
Keep in mind that you’re filing a single tax return with all of your other income, credits, and deductions. This might include work you do for Instacart or Amazon Flex, an hourly job, or child tax credits. Before you choose which software to use, make sure it can handle everything you need in addition to doing your rideshare taxes.