Do you know if you’re an employee or an independent contractor? Do you know the tax liability on your income? If you’re thinking about starting one of these services make an appointment with us to get you started off right. Learn what is deductible and what to expect during tax time.
Here are some basic things to keep in mind:
Independent Contractor Status:
- Rideshare drivers are typically considered independent contractors, not employees. While this brings more tax responsibilities, it also opens doors to potential tax breaks.
Self-Employment Tax Obligation:
- Independent contractors must pay the full self-employment tax, covering Social Security and Medicare taxes that employees usually share with their employers.
Quarterly Estimated Tax Payments:
- Due to the absence of tax withholding by employers, rideshare drivers are required to submit quarterly estimated tax payments throughout the year.
Tax Deductions for Drivers:
- Rideshare drivers can claim deductions for work-related mileage and other business expenses incurred during their activities.
Employee vs. Independent Contractor: The IRS Perspective
Determining your tax status is crucial, affecting how you calculate and pay taxes. The IRS considers several factors, such as:
- Who controls your work?
- Who owns your car?
- Do you receive benefits?
It’s essential to clarify your status to avoid potential tax-related complications.
Tax Impact on Independent Contractors:
- Independent contractors pay the full 15.3% FICA taxes on net earnings, covering Social Security (12.4%) and Medicare (2.9%). This is in addition to income tax.
- Quarterly estimated tax payments become the responsibility of independent contractors, a task typically handled by employers for regular employees.