How to Breeze Through Your Lyft 1099 Taxes

6

Min Read

Tom Smery

As a 1099 Lyft driver, you should file quarterly or year-round as applicable and make sure that these tax filings account for all of your driving. If this is your first year filing, this quick guide will walk you through everything you need to know.

Technically, you are paid as a self-employed business owner or 1099 independent contractor so Lyft doesn’t withhold taxes from your income. It's the reason why you don't receive a W-2 form. So, it is up to you to file your taxes. Of course, you should try to minimize your tax liability on your self-employment income when tax season rolls around. Later in this article, we'll show you exactly how to do that. But first, let's go over the basics of tax preparation for Lyft drivers.

Note: If you want to get a hold of your Lyft taxes and save a ton of money at the end of the year, try Bonsai Tax. Our software can help you automatically organize and track your tax deductions and send you filing reminders. Users typically save $5,600 from their tax bill by using our app. Try a 14 day free trial today.

The Types Of Tax Forms Lyft Drivers May Receive

Depending on how much money you made during the year,  Lyft will send you one of two different tax forms: Form 1099-K or Form 1099-NEC. The one you get is going to be based on both your earnings from the previous year. You'll need to know the differences between each form before you prepare your taxes.

1099-K Rules

The IRS requirements to receive this form are if you generated more than 200 transactions and more than $20,000 in gross ride receipts from self-employed driving in the last year.

If you live in Virginia or Vermont, Massachusetts, you'll receive this form regardless. For drivers in Illinois, you’ll get a 1099-K as long as you earned at least $1,000 in ride payments.

The tax form, 1099-K, doesn’t list your Lyft’s platform fees, Express Pay or Drive Rental fees, third-party fees, and tolls but you'll be able to locate this tax information in your Account's Annual Summary in your Driver Dashboard.

1099-NEC Requirements

In order to get this form, Lyft drivers would have earned at least $600. Lyft is not required to issue a 1099 for less than $600 of payouts to a contractor. Earnings include payments for driving, new city bonuses, mentoring, and referral bonuses.

In prior years, drivers usually would receive a 1099-MISC instead of a 1099-NEC. But in 2020, the IRS made the switch from a 1099-MISC to a 1099-NEC for non-employee compensation.

If you’ve had over that amount of Lyft income from driving this year and didn’t receive a 1099 Form before April 16th, contact Lyft immediately. Just because you didn't get your tax documents, does not mean you don't have to file taxes on your self-employment income.

The Annual Summary For Lyft Taxes

Your Annual Summary will show everything from your earnings (payments, non-ride earnings), expenses, total rides, and total online miles.

The annual summary will track all your necessary tax information so you won't have to keep receipts.

A Note On B Notices

If there's a problem with the name or Taxpayer Identification Number (TIN) you gave to a previous year, the IRS will send you a Backup Withholding Notice (B notice). All you need to do is follow the instructions on the B Notice to correct the incorrect information.

If Lyft does not receive the requested info within 15 days of sending the notice to you, you'll get 24% of your earnings withheld.

Your Tax Duty As A Self Employed Driver

There are two kinds of taxes you'll need to keep in mind as a Uber 1099 or Lyft rideshare driver: income taxes and self-employment tax. Lyft's summary will help you with the first, but the second is on you.

Income Taxes

Income taxes are the typical taxes you'll need to pay when you earn money. Income taxes are calculated by taking your "gross" earnings from Lyft (including non-ride earnings) and subtracting out any expenses incurred while earning.

As a rule of thumb, try to set aside 30% of your income during a year to pay your income taxes.

Self-Employment Taxes

You'll need to pay your own Social Security and Medicare or self-employment taxes when Lyft classifies you as an "independent contractor"  and not a full-time worker.

Self-employment tax is calculated by taking the total amount of your earnings from Lyft in one year, subtracting out any expenses incurred while earning (just like with income tax), then multiplying that number by the year's self-employment tax rate or 15.3% (on your first $137,700 of net income). Net income is your gross income after your qualified tax deductions.

If you need help finding how much you'll owe, try our self-employment tax calculator to easily find out.

Estimated or Quarterly Tax Payments

As a Lyft driver, it is up to you to calculate and pay taxes at the end of each quarter in which you made money from driving for Lyft.

You must pay estimated quarterly taxes four times a year if you expect to owe the IRS $1000 or more in taxes.

The quarterly tax payments are due on  April 15, June 15, September 15, and January 15.

It is up to you to calculate your estimated tax and pay the appropriate amount to the IRS to avoid any penalties.

Lyft 1099 Tax Preparation Tips

When filling out a 1099 sheet, Lyft drivers really just need to look at Box 1 of either tax form.

On the 1099-K, the dollar amount in Box 1 is the total amount that passengers paid for the rides you gave for the year.

The 1099-NEC Box 1 dollar amount includes all your earnings that aren’t related to passenger payments.

The numbers on the form are the total amount your customers paid, including the Lyft commission. You'll need to deduct these Lyft fees from your income later as a business expense. Remember to stay on top of when 1098s are required to be submitted to the IRS>

What Tax Deductions Can You Claim As A 1099 Lyft Driver?

Tax deductions can help you avoid paying 1099 taxes. You’ll use Schedule C to organize and deduct all your business expenses to minimize your tax liability. A Schedule C is for self-employed taxpayers to input their profits and losses for their business.  Lyft drivers can deduct Lyft fees, gas costs, vehicle maintenance, and other related expenses or the miles they drove for work.

Actual Expenses or Mileage Deduction? Which One Should You Take?

This is a question many 1099 Lyft drivers often ask. Should they record their actual expenses or track miles for tax season?

The answer is: it depends.

How often you use your vehicle for driving exclusively for business purposes or Lyft driving will determine which deduction you should take on your Lyft taxes.

But let me tell you, for most drivers, it would be the actual expense deduction. I'll tell you why in just a moment. Of course, it’s best to take either one of these deductions depending on which will result in a greater tax benefit. Let's quickly dive into each one.

Standard Mileage Deduction

The IRS introduced this method as a simple alternative to tracking all of your gas and maintenance receipts. This means you can figure out the expense by multiplying your business miles with per-mile rates (57.50 cents in 2020) to calculate total Lyft-related expenses. It's as easy as that.

Actual Expenses Deduction

Actual expense deduction is an IRS-approved method for claiming expenses related to the use of your car for business purposes. 

Keeping track of your Lyft-related business expenses can feel a bit more challenging and time-consuming than tracking your standard mileage. However, it can save you hundreds of dollars when tax time rolls around.

There are a number of vehicle expenses Lyft 1099 drivers can claim as tax deductions by using the actual expenses deduction.

Check out our list of deductible business expenses for 1099 contractors.

If you do the math, actual expenses for drivers will usually have a greater tax benefit. In fact, I'll show you.

Comparing The Two Deductions

Imagine if you drove 3,000 miles for Lyft in the year.

You would only get to deduct $0.57.5 per mile for your expenses. This equals $1,725 tax deduction.

When you compare it to the IRS' actual expense deduction by adding up things like depreciation costs, repairs, registration, gas, insurance, etc, it would be much more worthwhile to take the actual expense deduction.

If you are looking for an easy way to automatically track and record your Lyft business deductions, try Bonsai's freelancer expense tracker to do it all for you. Our software can help you Identify all of your company expenses, personal deductions, and credits that you may be entitled to reduce your tax bill and increase your refund.

Here's To Happy Filing Your Lyft Taxes!

Driving for Lyft has a lot of benefits, but the tax filing process can feel complicated and time-consuming. Hopefully, this article has made Lyft taxes a little less intimidating for you.

We hope that Lyft will implement automatic tax withholdings in the near future to make driving even more lucrative. If you have any tax return questions or are unsure about anything in regards to your taxes, don't hesitate to reach out to a tax professional for tax advice. Check out our blog for more tax tips.

Tom Smery
Tom Smery is a certified CPA for over a decade. In his free time, he writes articles to pass on his expert knowledge on taxes and accounting. Thomas has a wide range of deep knowledge on 1099 taxes, and finance topics. You can find him fishing when he is not preparing taxes for his clients or writing about accounting.

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