We have some new drivers joining the newsletter writing team. Today, Devin is in your inbox to talk about paying your taxes as a gig driver. Stay tuned, because it’s confusing, but if you do it right, it can save you so much money in the end.
When you drive for Uber, Lyft, Uber Eats, or DoorDash, you're not an employee. You're an independent contractor, which means you're running a small business whether you think about it that way or not. And because you are an independent contractor, you have to make the payments yourself.
And taxes are confusing…. especially if you are an independent contractor.
Here's the short version: we need to report our income on Schedule C, we pay self-employment tax on top of regular income tax, and we cut both down with deductions. The biggest deduction is your mileage.
I put this together with help from my wife, an accountant with more than 10 years of experience in this field. Even so, this is general information, not personalized tax advice. Your situation is your own, so talk to a tax pro before you make any big calls.
To keep this concrete, we'll check in with three example drivers as we go:
Driver 1 (part-time, modest earner): $47,288 gross, 51,442 business miles, $37,295 vehicle deduction, $2,500 in other deductions, $39,795 total deductions, $7,492 net profit.
Driver 2 (full-time, moderate): $64,532 gross, 45,622 business miles, $33,076 vehicle deduction, $7,000 in other deductions, $40,076 total deductions, $24,456 net profit.
Driver 3 (high-volume, full-time): $97,027 gross, 56,651 business miles, $41,072 vehicle deduction, $15,000 in other deductions, $56,072 total deductions, $40,955 net profit.
One thing worth flagging up front: net profit can be deceiving. Net profit is what you pay taxes on, not what you actually took home. For a lot of setups, the mileage deduction is bigger than what it really costs to run the car, so your real take-home is higher than the number the IRS taxes. Driver 3 probably brought home closer to $75,000.
How self-employment tax works for rideshare drivers
Every dollar you earn is taxable: rides, deliveries, tips, bonuses, and promotions all count. Platforms send you Form 1099-NEC (for $2,000 or more in non-employee pay) and/or Form 1099-K (for $20,000 or more across more than 200 transactions).
Self-employment tax is the part that catches new drivers off guard. It covers your share of Social Security (12.4%) and Medicare (2.9%), which comes to 15.3% on your net earnings after deductions, applied to 92.35% of your net profit. For 2026, the Social Security wage base is around $184,500. The good news: you deduct half of your SE tax as an adjustment to income on Form 1040.
On top of SE tax, federal income tax applies to your taxable income after the standard deduction (or after itemizing). A lot of drivers land in the 12% to 22% brackets, but once you stack SE tax on top, the effective rate on your marginal earnings often runs 25% to 35% without planning.
No tax on tips: the qualified tips deduction for drivers
Starting with your 2025 return (the one you file in 2026), there's a qualified tips deduction of up to $25,000. It lets rideshare and delivery drivers exclude certain voluntary tips from taxable income, which lowers your federal income tax. Two things to know: you have to report the tips as income to claim the deduction, and SE tax still applies to them. This helps most if a big chunk of your pay comes from tips. In my experience, food delivery tends to have a much higher tips-to-base-pay ratio, so delivery drivers hit the benefit faster.
One more wrinkle… the tips deduction can't be larger than your net income. But that also means if you earn more in tips than in other pay and you make under $50,000 a year, you can wipe out up to half your income against federal income tax with this deduction alone.
How much to set aside for taxes (and when to pay quarterly)
If you expect to owe $1,000 or more, you generally need to pay quarterly using Form 1040-ES. A safe habit: set aside 25% to 30% of your net profit after deductions. To avoid an underpayment penalty, the IRS wants you to pay either 100% of last year's tax liability or 90% of this year's.
Here's where our three drivers land:
Driver 1: roughly $1,059 in SE tax, $0 in federal income tax (net profit is low).
Driver 2: roughly $3,456 in SE tax, about $663 in federal income tax.
Driver 3: roughly $5,787 in SE tax, about $2,387 in federal income tax.
Car and vehicle costs that count against your taxes
Driving racks up vehicle costs, and some of them work like indirect taxes.
Gas and fuel taxes: Federal and state gas taxes are baked into the pump price, and they're one of your biggest operating costs. You recover them through your deductions (standard mileage or actual expenses). EVs and hybrids pay little or no gas tax, but a lot of states charge higher registration fees to make up for the lost road-maintenance money. In my county, registering a vehicle runs $29, with an extra $100 for a hybrid and $200 for an EV.
Registration and licensing fees: These are often deductible as a business expense if you use the actual expenses method (prorated by your business-use percentage). Some states tack on surcharges for rideshare or for-hire vehicles.
Tolls and parking: Deductible when you rack them up during active work, like on a passenger trip. Platforms often reimburse or note these, so claim them separately, even if you're using standard mileage.
Standard mileage or actual expenses: which saves you more?
This is the biggest decision you'll make. For 2025, the standard mileage rate is $0.70 per business mile, rising to $0.725 in 2026. That rate already covers gas, maintenance, depreciation, insurance, and the rest, so don't double-dip by deducting those separately. The actual expenses method means tracking every cost and prorating it by business miles against total miles.
Most drivers go with standard mileage. It's simpler, and it's often the bigger deduction, especially if you drive a fuel-efficient or electric car. Either way, track your miles carefully with Mystro.
Here's what mileage does at the 2025 rate:
5,000 business miles: $3,500 deduction
10,000 miles: $7,000 deduction
15,000 miles: $10,500 deduction
That can cut your taxable income by a lot. For our drivers:
Driver 1: about $37,295 in mileage deduction, plus $2,500 in other deductions.
Driver 2: about $33,076 in mileage deduction, plus $7,000 in other deductions.
Driver 3: about $41,072 in mileage deduction, plus $15,000 in other deductions.
Use Mystro’s new mileage tracking feature so that you can more easily get your tax deductions.
Tax deductions and write-offs for rideshare drivers
Every Schedule C deduction lowers both your income tax and your SE tax, so it's worth knowing what qualifies.
Vehicle-related (standard mileage already covers most of this):
Parking, tolls, and certain fees (deductible separately).
If you use actual expenses: gas, repairs, oil, tires, insurance (the business portion), depreciation, and lease payments or interest.
Operating expenses (always deductible):
Your phone plan (business-use percentage).
Supplies: phone mounts, chargers, cleaning supplies, and snacks or water for passengers.
The rideshare endorsement on your insurance (the extra premium).
Business licenses or permits.
A home office, if you have a dedicated space for admin work. It's rarely a big deal for rideshare, but it's there if you qualify.
Miles to and from your "place of business." This includes driving from a low-volume area to a high-volume one, even without a fare. That matters for people like me who live somewhere rural and drive into a nearby city to work.
Qualified tips deduction (new for 2025): up to $25,000 excluded, as covered above.
Keep good records: an app for mileage, receipts for everything else. Gig workers get audited, so being able to back up your numbers is what protects you.
State rules vary a lot, and they add a layer of complexity.
State income tax: Most states tax your rideshare income about the same way the feds do (reported on the state's Schedule C equivalent). Some states follow the new tips deduction; others don't.
Rideshare-specific fees and taxes: Several states and cities charge excise or sales taxes on rides. The platform usually collects and remits these, but they raise costs that get passed along. A few examples: New York's TNC assessment, a per-ride charge in Massachusetts, sales tax in Rhode Island, and local fees in cities like Philadelphia.
Registration and licensing: Some states require a for-hire endorsement or a business license, with fees that are deductible. EV owners often pay extra at registration (around $200 in some areas) to replace lost gas-tax revenue.
Unemployment and workers' comp: Usually not a factor for independent contractors, though some states have their own rules. California's Prop 22 is one example.
Local business taxes: Some cities want you to register if you drive there often, especially if you run Uber Black, which comes with its own regulations in some places.
Check your state's department of revenue, and if you drive across state lines, you'll need to allocate your income between them. For our three drivers:
Driver 1: $7,492 net profit, about $1,059 in SE tax, roughly $0 in estimated federal income tax.
Driver 2: $24,456 net profit, about $3,456 in SE tax, roughly $663 in estimated federal income tax.
Driver 3: $40,955 net profit, about $5,787 in SE tax, roughly $2,387 in estimated federal income tax.
Underpayment penalties: Pay your quarterly estimates on time and you avoid them.
Health insurance: If you're self-employed, your health insurance premiums are an above-the-line deduction.
Retirement: A SEP-IRA or Solo 401(k) can knock down your taxable income in a real way.
Audit risk: High mileage claims with no log to back them up are a red flag.
1099 thresholds: These are climbing, so fewer drivers will get forms in the coming years. You still owe tax on income you don't get a form for.
EV and hybrid incentives: Some state programs still exist, but watch for the higher registration and fees that often come with them.
Record-keeping apps: They're the difference between a clean filing and a stressful one.
Treat yourself like what you are: a transportation business. Start with your gross income, subtract every legitimate deduction, and you get your net profit. Apply SE tax to that net (half of it is deductible), then layer on federal and state income tax. The drivers who track every mile, receipt, and fee are the ones who save thousands a year.
Your game plan:
Track your miles and expenses year-round, not just at tax time.
Set aside 25% to 35% of your earnings for taxes.
Pay your quarterly estimates.
Talk to a CPA who knows the gig economy, especially if you drive across state lines or earn a lot.
Read your platform tax summaries and 1099s carefully.
Look into forming an S-Corp if your earnings are high enough to justify the SE tax savings.
Rideshare gives you flexibility, but taxes ask for discipline. The rules keep shifting (tips deduction, mileage rates, and the rest), so treat staying current as part of the job. Do that, and you keep more of what you earn.
Start your mileage log today. It's the single highest-value habit for your taxes, and every mile you don't track is money you hand back at filing time.
This guide is general education, not personalized tax advice. Rules change, so always check current IRS and state guidance or talk with a tax professional about your situation.