Starting your own business can be rewarding, but also difficult. One of the most challenging parts of being a 1099 driver is understanding what taxes you owe and how to file them on time. With this guide, we'll walk you through everything from deciding if self-employment is for you to how to get started with filing your taxes so that come tax season, all of your bases are covered.
The U.S Laws can seem complicated at times, but don't worry—we've got your back. In our blog post today, we're going to discuss what's involved in filing taxes as a 1099 contractor and give some helpful tips for doing it right the first time. Sound good? Great, let's get started.
Note: If you are a gig or truck driver and you would like some help to manage deadlines, track business expenses, and estimate your taxes, try Bonsai Tax. Our tax software helps you discover deductions, organize your trucking or gig work receipts and maximize your savings from your tax bill. In fact, users of our software save an average of $5,600 from their tax liability. Claim your 7-day free trial here.
What is a 1099 Independent Contractor?
A 1099 independent contractor is not considered an employee. Instead, they are deemed as a freelancer or self-employed worker. A contractor is generally hired for a task or particular assignment to be performed. Because they are not employees, 1099 workers are not paid wages or a salary.
1099 drivers may be like DoorDash contractors, Postmates, Instacart, Uber, Lyft, or other related gig jobs Truck drivers for "freight services deliveries" are also 1099 contractors.
There are many laws in place for employers to use to determine if someone should be an employee or independent contractor. Some of those include:
- Is the employee or driver free to work or create their own schedule/ hours?
- Can the employee work for other companies at the same time?
- Do the employers dictate or control exactly how the work of the driver is done?
- Is the company allowed to oversee the worker's work directly?
Misclassification of Independent Contractors
Sometimes companies will misclassify truck drivers to save money on costs. If companies have to hire drivers as employees, this adds a bunch of expenses like paying for benefits, workers' compensation, or unemployment insurance. States like California implement a legal litmus test or the 'ABC test' to make sure a company is not misclassifying employees as freelancers. In the trucking industry, this test could cause a lot of problems because a driver would be free from control from the hiring company in regards to the performance of the work or delivery job and how it gets done.
If you are being misclassified and having your rights infringed upon, contact an attorney to assist with taking your trucking company or client to court. A trucker should be compensated for being taken advantage of by their employers.
Forms 1099 Drivers Receive
Although there are many 1099 forms, freelance drivers will only have to deal with a couple of them. The company or client's deadline to mail 1099s to taxpayers is typically January 31. If you are a delivery driver or gig driver that does not receive the form after that date, contact your employer. Let's review some of the most common IRS forms 1099 drivers receive.
IRS Tax Form 1099-NEC
The 1099-NEC is the most common 1099 form sent to freelancers. This form took over the 1099-MISC reporting requirements in 2020 for miscellaneous income. The prerequisite to receiving this form is if you were paid at least $600 in prior-year earnings from one source. For example, if you earned $951 as a GrubHub contractor, you'll be sent a 1099-NEC.
1099-K
The requirement to receive a 1099-K is if your earned over $20,000 and have more than 200 transactions in the previous year. The IRS tax form, 1099-K, is also sent out for merchant or 3rd party payment transactions so don't be confused. Here are the IRS instructions for this form.
How Are Independent Contractors Taxed?
An employer or client does not pay any of the driver's Social Security or Medicare taxes (self-employment tax). These taxes are the sole responsibility of the independent contractor. The self-employment tax rate is 15.3%. 12.4% for Social Security and 2.9% for Medicare.
Filing Your Quarterly Taxes
The U.S operates on a system where self-employed folks who are paid in full without having any taxes withheld from their payments, need to pay taxes on their income four times a year. This is so contractors don't have to pay one big tax bill at the end of the year. Let's go over when estimated quarterly taxes are due.
Due Dates For Quarterly Taxes
Currently, the due dates for estimated taxes are:
- April 15
- June 15
- September 15
- January 15 of the following year
You can send your payments through the IRS's website.
Underpayment and Overpayment Of Quarterly Taxes
It is important that you send the correct amount four times a year to the IRS to avoid any penalties or fines. If you send or pay less money than you should for your quarterly taxes, you could face a tax underpayment penalty.
Don't worry so much about the overpayment of estimated taxes as it would just result in a refund at the end of the tax year.
To figure out how much to send for your quarterly taxes, take your entire tax burden (this includes self-employment tax, income tax, and any additional taxes.) for the previous, and divide that number by four.
Difference Between A W2 Versus A Self-Employed Driver?
The difference between a W2 versus a freelancer is simple. A W2 worker is a company driver. The employee would receive regular wages with employee benefits. The employer would also withhold money from their wages to pay for income taxes. Employers have a high degree of control over the employee's or driver's work and hours.
To be labeled as an independent contractor, the driver has to perform services outside the usual course of the company business. Sometimes, a trucker would establish their own business structure like an LLC as well.
Tax Deductions Available To 1099 Drivers
Keeping track of receipts for taxes is vital to lowering how much you'll owe to Uncle Sam at the end of the year. Tracking your miles and having clean records of all your expenses is necessary to show the IRS you have legitimate self-employment deductions.
If you decide to go this route, try our online mileage log template to help out with that.
Now, let's review a list of the most common deductions available to freelance drivers.
- cell phone bill write-off
- phone mount
- vehicle floor mats
- car/truck insurance
- roadside assistance
- service fee/ repairs
- gig app snacks/supplies
- mileage (check out our article on claiming the standard mileage deduction vs actual expenses)
- gas
- parking fees
- car washes
Note: if you want to use a tax software to track and organize all your deductions for you at the push of a button, try Bonsai Tax. Our tax hub is a freelancer's dream. Record all your receipts, estimate your taxes, and get filing deadline reminders. Bonsai Tax could do it all. Our users save $5,600 on average by using our software. Claim your 7-day free trial today.
Expenses That Are NOT Deductible
There are a few common costs of driving a truck or gig apps that aren't deductible. Here's a list.
- Clothing appropriate for daily wear
- Home phone cell phone bill
- Commuting costs/ miles from home to work or business headquarters
- Expenses reimbursed to you
- personal travel expenses and meals
Here's To Filing Your Truck Driver Taxes!
Trucking and being a freelance driving is hard enough. We hope this guide has helped walk you through what you need to do in order to file your 1099 truck delivery or gig worker taxes as well as give you some useful information. Refer back to this guide in order to have a smooth tax season. See for yourself how our tax software makes it easier for you during tax time and save you thousands of dollars. Try a 7-day free trial here.
Remember, it is your job to properly file your tax duties. We need to state that this article is NOT tax advice. We always recommend you consult with a tax professional or accountant for any advice.
