If you haven’t been paying taxes as an Uber driver or got a notice from the IRS that you should have been paying more, here’s what can happen next and what you need to do.
Can the IRS find out if an Uber driver isn’t paying taxes?
It’s actually very easy for the IRS to find out if an Uber driver isn’t paying taxes. Your Uber 1099 form goes to both you and the IRS.
If you don’t report the income, the IRS will usually send you a notice saying you owe taxes on the amount shown on your 1099.
In some cases, Uber drivers who don’t pay taxes do slip through the cracks. They might report other income that the IRS doesn’t realize wasn’t from their Uber 1099. The IRS also sometimes just doesn’t get to everything even when they already have the information they need to send a letter.
What happens if the IRS finds out an Uber driver is evading taxes?
The most likely outcome is that the IRS will send a tax bill with penalties and interest. An Uber driver who was evading taxes will owe:
- The taxes they should have paid
- Interest from the time their taxes were due
- A late payment penalty of 0.5% per month
- A failing to file a tax return penalty of 5% per month (if they didn’t file)
- A penalty of 20% of the additional tax owed if they underreported their taxes by the greater of 10% of the actual tax owed or $5,000.
The IRS may also refer the matter to the Department of Justice for criminal prosecution, but this is rare.
What do I do if the IRS says I was evading taxes when I wasn’t?
If you weren’t filing a tax return, you actually probably should have been. You need to file a tax return if you have $400 or more in self-employment income. If you thought you didn’t have to file because of the standard deduction, you will have to complete a tax return and pay what you owe.
The most common IRS audit for an Uber driver is requesting proof of your expenses. They might want to see your mileage log or proof that an expense like a dash cam was really for business purposes. It’s up to you if you feel comfortable sending in the information the IRS wants or if you want to get a CPA or Enrolled Agent to help you.
What should an Uber driver do if they haven’t been paying taxes?
If you’re an Uber driver and haven’t reported your Uber income, you usually need to file a proper tax return and pay the taxes ASAP. The same applies if you underreported your income or overstated your deductions.
If you never filed a tax return, get the tax forms for the correct year and send in your tax return with your payment. If you filed a tax return but didn’t include your Uber income, you’ll need to file an amended tax return.
See the Uber Driver Tax Guide for more information on how to file your taxes as an Uber driver.
The IRS will bill you for the interest and penalties.
How long does the IRS have to address tax evasion?
The IRS has an unlimited amount of time to seek back taxes if you either never filed a tax return or filed a fraudulent return.
They have six years to seek back taxes if you understated your income by 25% or more.
They have three years to seek back taxes in other cases.
When should you contact a tax professional?
You should contact a tax professional if:
- You’re not sure how to file your taxes
- You’re thinking about not correcting your taxes because of how long it has been
- You can’t pay what you owe and need help figuring out your options