How Much Do Dashers Actually Pay in Taxes?

Dashers, those who deliver for DoorDash, operate as independent contractors, not traditional employees. This classification means they have different tax obligations than someone who receives a regular paycheck with taxes already withheld. Understanding these responsibilities is important for managing finances and ensuring compliance with tax laws. This guide will clarify the tax landscape for Dashers, outlining how earnings are reported, what business expenses can be deducted, how taxes are calculated, and when and how payments should be made.

Understanding Dasher Earnings

As an independent contractor, all income earned through DoorDash is considered taxable income. This includes delivery fees, customer tips, and any bonuses or promotional payments received. Unlike traditional employees who receive a W-2 form with taxes already withheld, Dashers receive a Form 1099-NEC, which reports nonemployee compensation.

DoorDash issues a Form 1099-NEC to Dashers who have received at least $600 in payments during the calendar year. Even if total earnings are below this $600 threshold and a 1099-NEC is not issued, all income must still be reported to the Internal Revenue Service (IRS). The Form 1099-NEC reports gross payments without tax deductions.

Identifying Business Deductions

One significant advantage of being an independent contractor is the ability to deduct legitimate business expenses, which reduces taxable income. Keeping detailed records, such as mileage logs and receipts, is essential to substantiate these deductions.

Vehicle expenses often represent the largest deduction for Dashers. They can choose between deducting the standard mileage rate or claiming actual expenses. For 2024, the standard mileage rate is 67 cents per mile, which accounts for the average costs of gas, maintenance, insurance, and depreciation. If opting for actual expenses, Dashers can deduct costs like gas, oil changes, repairs, insurance, and vehicle depreciation, but they cannot claim both methods simultaneously.

Phone expenses are also commonly deductible, as a smartphone is a primary tool for delivery work. Dashers can deduct the business portion of their phone bill and the cost of phone accessories like chargers and holders. If a phone is used solely for business, 100% of its cost and plan can be deducted; otherwise, only the percentage used for business is deductible.

Other deductible supplies include insulated hot bags, blankets, and cleaning supplies necessary for deliveries. These include parking fees and tolls incurred during deliveries. Professional fees, such as those paid for tax preparation services, can also be deducted. If a Dasher pays for their own health insurance and is not covered by an employer’s plan, they may be able to deduct health insurance premiums.

Determining Your Tax Amount

After identifying all deductible business expenses, these amounts are subtracted from gross earnings to arrive at net earnings from self-employment. This net figure is the basis for calculating tax liability. Dashers, as self-employed individuals, are responsible for paying both income tax and self-employment tax.

Self-employment tax covers Social Security and Medicare contributions. For 2024, the self-employment tax rate is 15.3% on 92.35% of net earnings from self-employment. This 15.3% consists of 12.4% for Social Security, applicable up to an annual income limit ($168,600 for 2024), and 2.9% for Medicare, which has no income limit. Half of the self-employment taxes paid can be deducted from gross income when calculating adjusted gross income for income tax purposes.

Once net earnings are determined and self-employment tax is accounted for, the remaining taxable income is subject to federal income tax. The federal income tax system uses a progressive structure with various tax brackets. Dashers will also apply either the standard deduction or itemized deductions to further reduce their taxable income before calculating their final income tax liability.

Making Tax Payments

Since DoorDash does not withhold taxes from earnings, Dashers are generally required to make estimated tax payments throughout the year. This is necessary if they expect to owe at least $1,000 in tax for the year. These payments cover both income tax and self-employment tax.

Estimated tax payments are made quarterly, following specific due dates set by the IRS. For the 2024 tax year, these dates are typically April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or holiday, the deadline shifts to the next business day. Paying estimated taxes on time helps avoid underpayment penalties.

Dashers can use IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or the IRS2Go mobile app. Payments can also be mailed with Form 1040-ES payment vouchers. It is possible to pay more frequently than quarterly, such as monthly, as long as enough tax is paid by each quarterly deadline.

Required Tax Forms

At the end of the tax year, Dashers will need to file several forms as part of their annual tax return. The main form for reporting self-employment income and expenses is Schedule C (Form 1040), Profit or Loss from Business. This form summarizes all business income and deductible expenses, and the net profit or loss calculated on Schedule C then transfers to the main Form 1040.

Another important form is Schedule SE (Form 1040), Self-Employment Tax. This form is used to calculate the self-employment tax owed, which includes contributions to Social Security and Medicare. The amount of self-employment tax determined on Schedule SE is also reported on Form 1040. Dashers must file Schedule SE if their net earnings from self-employment are $400 or more.

Form 1040, U.S. Individual Income Tax Return, is the central document where all income, deductions, and calculated taxes are summarized. This form brings together the net profit from Schedule C and the self-employment tax from Schedule SE, along with any other income or deductions, to determine the total tax liability or refund.