Many students working in the “gig” economy struggle during the tax filing season due to lack of knowledge regarding their obligations and deductions.
“Gig” economy jobs include occupations that are not permanent such as Uber, Lyft, Door Dash and other short-term contracts or freelance jobs. Last filing season, students who were in the gig economy demonstrated lack of understanding concerning timely payment of their taxes and keeping up with their mileage, according to SF State’s Volunteer Income Tax Assistance (VITA) program faculty advisor Katie Hetherington.
VITA is a program on campus that prepares returns every year for low-income students and people in the community for free.
“Working for Uber is attractive to students because it can be very flexible, but it comes with a unique tax situation in that you are self-employed — you’re your own boss — whereas for students who work for a restaurant, they have an employer who’s withholding taxes from their paycheck,” Hetherington said.
Having a self-employed status means that Uber, Lyft and Door Dash drivers need to keep track of their mileage and make quarterly tax payments. Anyone who is self-employed is also always required to file a tax return. As for other workers, they are only required to file a tax return when their income reaches $10,400 or more.
“Students in the gig economy like Lyft and Uber drivers should treat it more as a business, make an Excel spreadsheet of their miles and other expenses,” VITA site coordinator Gary Thomas McCorkle said. “Because the taxes aren’t withheld they should set aside at least 20 percent of the money they make because they’re going to have to pay taxes on that.”
McCorkle suggests that students really keep track of their mileage because Uber’s statements may sometimes only show the miles of when a client is in the car, which is not accurate for tax purposes. Drivers get to deduct mileage for the whole day from when they get to their first client until last client at the end of the day. All these mileages are considered business miles.
Junior biology major Juan Perdomo, who drives for Door Dash, ended up having to just give an estimate of his mileage when he had to file for taxes because he didn’t know he was supposed to keep track of his mileage for tax purposes. Fortunately, this didn’t cause him any problems because he only drove a few hundred miles.
“Uber drivers who only do Uber for a living get a lot of money but if they don’t make tax payments on time, they end up having to pay a lot when they file,” Perdomo said.
Students who fail to make quarterly tax payments may get penalized.
“If the driver will owe $1,000 or more in taxes, he or she must make quarterly estimated tax payments. He or she cannot wait until filing his or her return to pay taxes,” Hetherington said.
The exception to the rule, Hetherington explained, are U.S. residents who had no tax liability in the previous year.
Students are encouraged by VITA to seek out their assistance to avoid these penalties and obstacles in the present and future.