If you are a 1099 truck driver, then you know you'll need to file your taxes at the end of the year. The IRS considers you as a self-employed business. There's a lot more responsibility to being a freelance truck driver than a company driver. As a freelancer, you'll have to pay self-employment taxes at the end of the year, record your business receipts for deductions, file quarterly tax payments, and much more.
Not to worry. In this article, we'll cover the taxes you'll owe, the difference between a company driver and a freelancer, estimated tax payments, deductions you'll qualify for, and why Bonsai Tax is hands-down the best tax software for truck drivers. Without further ado, let's jump into the tax forms you'll receive as a self-employed worker.
Note: If you want an easy way to manage your taxes and deductions, try Bonsai Tax. Our software estimates tax liability, sends important filing reminders, scans your credit card/bank receipts, and discovers potential tax write-offs at the push of a button. Users generally save $5,600 from their tax bills. Claim your 7-day free trial today.
Tax Forms You'll Receive As A Freelance Truck Driver
The IRS requires businesses who use freelancers to send their contractors a 1099 form. A 1099 tax form is simply a record of payments given by a company to freelancers for their services. In other words, it is an information return. There are many different variations of 1099 tax forms, but we'll go over the one most relevant to you, the 1099-NEC.
Requirements To Receive A 1099-NEC
A 1099-NEC is the most common tax form sent out to independent contractors. The reason why is because of the low requirements to receive a tax form. The condition to receive a 1099-NEC is if you were paid at least $600 from a business in non-employee payments for the year. Prior to 2020, the 1099-MISC was used to report non-employee compensation. The IRS simply changed the reporting requirements over to the 1099-NEC. As a freelance truck driver, this is the form you'll deal with.
What To Do If You Do Not Receive A 1099?
Businesses are required to send out 1099 forms by January 31sy. If you freelanced and didn't receive a 1099, there may be a few reasons why. Businesses are only required to send a 1099-NEC to freelancers where they paid at least $600. If you were paid less than that amount, then the company is not required to send you a form. You still need to report your earnings to the IRS.
All the money you earned for the year should be reported to the Internal Revenue Service. You do NOT need to pay self-employment taxes only if you earned less than $400. However, you'll still be responsible for paying it on your own. For example, if you were paid $500 for freelance truck driving work, then you won't receive a 1099. You will, however, need to report the earnings on your income tax return and still pay self-employment taxes.
If you earned over $600 and you did not receive a 1099, check with your client. The address they have on file may be wrong and it was mailed to the wrong place or perhaps they simply forgot. Check in with them to make sure.
How Much Do Owner Operator Truck Drivers Pay In Taxes?
As a self-employed worker, it is your responsibility to pay self-employment taxes. Social Security and Medicare total up to 15.3%. That is 12.9% for Social Security and 2.9% for Medicare.
Luckily, you can lower your tax liability by claiming tax deductions for your business. We'll go over recording business receipts and what tax deductions you qualify for later in the article (you'll use a Schedule C).
Remember, the minimum income you need to earn to file self-employment taxes is $400. For example, if you earned $5000 as a freelancer but you had $4,700 of expenses. Your net is $300. As a result, you wouldn’t owe any self-employment taxes.
As a freelancer, you'll need to file quarterly tax payments four times throughout the year.
We'll go over the due dates and what quarterly taxes are in the next section.
Filing Truck Driver Quarterly Taxes
The U.S. runs on a pay-as-you-go system for taxes. This means that you must send in estimated taxes throughout the year. These four tax payments paid every three months, are meant to cover Social Security, Medicare, and your income tax.
To calculate your quarterly tax payments, all you need to do is add up your total tax liability for the year (including self-employment tax, income tax, and any other taxes) and divide that number by four. This is the amount you'll send to the IRS every quarter. You could also figure out how much you'll pay by using a 1040-ES.
Owner Operator Due Dates For Quarterly Taxes
The due dates for quarterly taxes are as follows:
January 15 of the following year
You'll need to send in these payments before the due date. Be sure to mark your calendars with the dates so you don't forget and be sure to send in the right amount or you can face a quarterly tax penalty.
You'll be able to send payments directly to the IRS by using Direct Pay.
Independent Contractor Tax Deductions You Qualify For
Let's remove a list of tax deductions available to truck drivers.
Business meal deduction
While most companies are allowed to deduct 50% of lunch meal costs, drivers who are subject to the Department of Transportation's "hours of service" regulations can claim up to 80% of their actual meal costs. The hours of service law compels drivers who have driven a specific number of hours to come to a complete stop and rest for a set amount of time.
Truck drivers are supposed to stop and rest after a specific set of times. They can opt to take the per diem allowance rates. The per diem method is much easier. Instead of keeping track of expenses for every meal, you can deduct a set amount per day. Check Publication 1542 for the Per Diem allowance rates.
You can deduct the cost of commercial auto liability, property damage, and health insurance premiums from your tax liability. You may also deduct insurance to cover cargo or lost earnings due to a business interruption.
The cost of any equipment or tools you need for your trucking business are deductible expenses, including chains, ratchet straps, tarps, bungee cords, duct tape, tire irons, etc.
While you’re away from your "tax home" overnight are deductible. This also includes expenses you incur where you travel long enough to require rest. The cost of hotels, AirBNBs, tolls, parking, etc.
There are many tax deductions for personal products for owner-operators. These expenses are cooler or minifridge to store food and water, logbook, cleaning supplies, flashlight, GPS, sunglasses, alarm clock, bedding expenses, and gloves. Traditional office expenses could also be written off.
The IRS classifies a semi-truck to be a qualified non-personal-use vehicle. This means you can claim ALL the actual expenses of operating the vehicle, including depreciation, insurance, fuel, replacement tires, insurance, registration fees, repair/maintenance costs, truck washes.
Training / Education Expenses
In the trucking business, you'll need to undergo specific training to start your career. The trucking industry requirement is for applicants applying for a Class A CDL would be required to obtain 30 hours of driving experience from a training school that meets FMCSA standards. This also includes at least 10 hours of driving the truck on a practice driving range. CDL training materials and the cost of the course can be deducted.
Note: if you want an easy way to track your trucking deductions, then try Bonsai Tax. Our app will scan your receipts from your bank/credit card statements to discover tax write-offs and maximize deductions. In fact, users save, on average, $5,600 from their tax bill. Try a 7-day free trial here.
Company Driver Versus Independent Contractor
Most trucking companies have an employment contract with their workers that outlines the specific classification of their workers. This signed classification is important in regards to tax implications with the IRS. A W-2 employee or an independent contractor is taxed differently. A lot of truck drivers are mislabeled as a freelancer instead of an employee.
As a 1099 worker and not a W-2 employee, you are not considered a fleet employee. There are many key differences between employees and freelance drivers. Here are some of the differences.
As a freelance truck driver, you won't have payments withheld by your employer to pay your Federal income tax. On the other hand, employers need to withhold payments to employees in order to cover those. A company driver uses Form W-4 to figure how much money would need to be withheld.
The number of clients
An employee essentially works for the company. Typically, employees work for a single company. A freelancer is independent and can take on a number of clients at a time.
A freelancer, unless contracted for a long duration, generally is used for shorter projects. An employee is used to fill a specific role and for a long duration.
An employer typically provides employees with benefits such as vacation days, health insurance, dental and vision coverage, unemployment, life insurance, and retirement planning. A freelancer does not receive any benefits from their clients.
Time Schedule or Hours Of Service
As an employee, your employer can control the hours of service for when you work. As an independent truck driver, you determine when you work.
Control of Work Completed
Clients cannot control how the work is completed if you are a freelancer. Independent truck drivers' work is governed by project contracts and there are some limits on the control, however, you have complete control over how the work is done.
independent truck drivers can leverage 1099 tax deductions to lower their tax liability. Employees are generally reimbursed for costs incurred while working.
To determine if a worker is an employee of an independent contractor, many States use the "ABC test". The ABC test is a legal litmus test to determine.
The “ABC test” is a legal test used by many states in employment-related laws, such as for workers' compensation or unemployment compensation, to determine whether a worker is an employee or independent contractor. Many companies try to save money on paying for benefits such as unemployment or medical coverage by claiming workers as freelancers. This test helps mitigate independent contractors from being taken advantage of.
The Three Rules
According to the Internal Revenue Service, any person providing assistance is considered an employee, not an independent contractor, unless—
The individual is free from control and direction in connection with the performance of the service
The service is performed outside the employer's usual course of business
The individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.
These guidelines will determine if you are an independent contractor or an employee. The trucking industry is notorious for trying to control its workers. Many trucking companies would not pass the ABC test as they tend to exert too much control over the truck drivers.
Bonsai Tax Helps Truck Drivers Save Money
At the end of the year, you don't want to be stuck with a large tax bill. Take advantage of the benefits of being a self-employed worker and claim all your tax deductions. Bonsai Tax can help you estimate your tax bill, send you important tax date reminders, and track all of your expenses and lower your tax bill.