So you decided to be an Uber driver! You got your side hustle flow and you’re making easy cash. You set your own hours and you can make a few hundred bucks on the weekends to pay rent, groceries, or even that well needed vacation. Everything seems great… until tax time hits.
If you’re familiar with Uber then you know what this is, if not let me introduce you to this lovely form. This is a 1099-Misc which reports your total Uber income for the year. Congratulations! You’re self-employed – this means you’ll have to report all of this income on schedule C of your 1040.
So is money you earned from Uber taxable? The short answer is yes. However, you will be able to deduct your expenses like gas, maintenance, mileage, etc. The net of your income and all your allowable business expenses will be your net income which you’ll pay taxes on.
Here are some of the taxes you’ll have to pay:
- Federal income tax.
- State income tax (where applicable).
- Employee portion of social security and medicare tax.
- Employer portion of social security and medicare tax.
The real killer here is the double FICA tax. If you earned those wages at a regular job and received a W-2 then you’d only have to pay 6.2% for social security and 1.45% for medicare. Your employer matches that amount and pays the tax when they file quarterly payroll tax returns. But since you are self-employed you are considered both the employee and the employer. This means you’ll pay an additional 15.3% instead of just 7.65% in FICA taxes. The only upside is that the employer portion of these taxes are deductible on your tax return.
Let’s look at an example to put this all in perspective:
John is an Uber driver in New York. He makes $40,000 a year at his regular 9 to 5 and drives with Uber on the side. On average he’ll make $20 an hour driving with Uber and incurs about $4 in allowable business expenses per hour (gas, mileage, maintenance, etc.). This means John nets $16 per hour driving with Uber which is not bad at all.
- John will have to pay 15.3% self-emplyoyment tax on that $16 which comes out to $2.45.
- John’s marginal tax rate for federal income tax is 25% but he gets to deduct half of the $2.45 ($1.22) from the $16 before calculating his tax. 25% of $14.78 ($16 – $1.22) will yield tax of $3.69.
- John lives in New York so he will have to pay state taxes. His marginal tax rate is 6.45% which will cost him another $1.03 in taxes.
- If you add up all these taxes you’ll arrive at $7.17 per hour. Net this against John’s $16 an hour and you get an after tax income of $8.83 per hour
Can you make extra income driving with Uber? Yes, of course. Is it as profitable as it seems? Not exactly. However, driving with Uber can give you that extra cash you might need – just don’t expect to get rich bringing home $8.83 an hour.