You owe taxes working for DoorDash. Here’s how taxes work with DoorDash. Plus what tax deductions you can get if you drive for DoorDash.
OK, guys. I finally did it. I picked up a side-hustle.
You guessed it, I landed a job with the best of the best side-hustles — DoorDash. Like many of you, DoorDash has served me the chance to make extra cash when I need it. My basking in the thrill of the gig-economy could only be darkened by one thing: Taxes.
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And wouldn’t you know it, that dark and stormy rain cloud rolled into my inbox yesterday evening. It was an email from DoorDash kindly writing to remind me that as an independent contractor, it is mine not their duty to withhold taxes.
Wait a second. Is this true? Do I owe taxes working for DoorDash?
Yes, I owe taxes if I earned more than $600 working for DoorDash.
My head is spinning. Taxes are confusing. No teacher taught me about taxes. Ask me about the mitochondria. I’ll tell you it’s the powerhouse of the cell. Just don’t ask me anything about taxes.
I spent the afternoon searching high and low for every ounce of information I could find on the subject. Get ready. I’m going to share with you everything I know about how taxes with DoorDash work.
Do I owe taxes working for DoorDash?
Yes, you will have to pay taxes just like everyone else. If you made more than $600 working for DoorDash in 2020, you have to pay taxes.
This isn’t exclusive to only DoorDash employees, either. If you took on some side jobs to make up for lost income, that money you made will be taxed. You will owe income taxes on that money at the regular tax rate.
Additionally, you will have to pay a self-employment tax. This is a 15.3% tax that covers what you owe for Social Security and Medicare. When you’re a traditional employee, your employer will split the cost of these with you. But when it’s just you, you are responsible for the whole thing. It’s not all bad news. You may be able to write off a portion of that self-employment tax on your annual tax return.
How do taxes with DoorDash work?
DoorDash is an independent contractor and doesn’t automatically withhold federal or state income taxes. You will calculate your taxes owed and pay the IRS yourself. But there are a number of ways you can do this.
After you know how much you made, you will need to do some calculations. You will next want to determine if you were eligible for any tax deductions. You don’t need a perfect number at this point. This stage is helping you decide your next move, because you have options.
How do I pay taxes for DoorDash?
It all really depends. Believe it or not, you have a choice.
You can file as you normally would. If you do this, you will pay your taxes owed before the April 15 tax filing deadline. But you may want to think long and hard before choosing this option. With zero withheld, your taxes will pile up and you will have a big tax bill due Tax Day. If you cannot pay the full amount, you will face penalties and owe interest.
Another option is to pay quarterly estimated payments direct to the IRS. This could help you avoid a surprise tax bill and possibly keep you from paying any penalties. The IRS doesn’t want you to wind up with a large bill you cannot afford. If you expect to owe more than $1,000 in taxes for the year, the IRS may suggest quarterly payments. Quarterly taxes are sometimes required for self-employed people whose income exceeds a certain amount.
Should you pay quarterly taxes, you will calculate your estimated taxes owed. Then you will pay that money directly to the IRS every three months. Instead of having one traditional tax day, you will have four. Those dates are April 15, June 15, Sept. 15, and Jan. 15.But be careful: should you underpay, you may face a penalty. It’s a little complex, and the IRS has more information for how this works (plus a handy withholding estimator tool).
Here’s a good bit of advice for the future: Set aside 25-30% of every paycheck for taxes. I know, that’s a lot. But since taxes from your side hustle aren’t withheld, you should be prepared. It’s better to overestimate. It’s better to not be scrambling when tax deadlines roll around.
Am I eligible for tax deductions working for DoorDash?
Yes. But like any painstaking math problem, you have to show your work.
You can deduct many expenses to pay less in taxes for income earned through DoorDash. The big one is mileage. You can deduct your mileage for the miles that you drive to your first delivery pickup, between deliveries, and back home at the end of the day.
How much? You can deduct 57.5 cents per mile driven for DoorDash. Why this number? Well the IRS calculated how much on average it costs to use your car. Think of this number as the bulk for gas, maintenance, and car insurance, among other things. Remember this number. Instead of keeping tabs of gas receipts and repair costs, track mileage. It’s a lot simpler, and may actually save you more in taxes.
Can I deduct anything else? You bet. You need to use your phone — and quite a bit of data. Your phone is deductible. But there’s a catch: You can only deduct the expenses based on the percentage of business use. It’s tricky to know how much of your phone usage is for work, but figure your best guess. You can deduct the percentage of your phone bill, based on how much is used for work.
Keep a log of these deductibles and have them ready when you file. Remember, a tax deductible lowers the amount of income subject to taxes. Tax credits, on the other hand, reduces the total amount you owe.
How much will I owe in taxes working for DoorDash?
It depends. But I’d recommend you plan for 25-30% of every paycheck to go to taxes. That may be an overestimate. But it’s best not to be blindsided by a big tax bill when Uncle Sam comes calling.
If you owe above $1,000 in taxes from your gig job, you will pay quarterly taxes. Either way, your estimate should be about the same — 25-30%. But that’s strictly an estimate. By the way, it’s not a bad thing to overpay. You’ll get a tax refund just like everyone else if you do. Oh, and if you pay quarterly, that doesn’t exempt you from an annual return. You’re still on the hook for that. Sorry, kid.
So, how do you feel?
It’s tough living in the real world.
But taxes are a guarantee.
Having a plan is your best bet. We will get through tax season just like we got through ninth grade science. It wasn’t easy. But it happened.
If you need financial assistance brought on by an unexpected or surprise bill, I may have a remedy for you. Visit this homepage to learn more. Oh, and if you received unemployment benefits in 2020, those are taxable, too. I have more information on that over here.