The Hidden Tax Costs Of Being a DoorDash Driver

The gig economy has transformed how many people earn a living. Platforms like DoorDash provide the flexibility and autonomy that traditional jobs often lack. However, this independence also comes with a set of tax responsibilities.

In conventional jobs, employers usually withhold taxes from paychecks. This system, while not perfect, creates some sort of "forced discipline" among employees. And that’s how they always manage to fulfill their tax obligations before the end of the year. 

Contrast this with gig work such as DoorDashing, where no taxes are withheld. Instead, it’s all up to the DoorDash driver to handle their tax calculations and payments. Neglecting tax duties can otherwise lead to unexpected bills or even penalties. 

In the sections that follow, we'll bring you up to speed with all those legalities. Here’s a snapshot of the DoorDash tax matters that we’ve highlighted:

• Income Definition: All earnings from DoorDash, including tips and bonuses, are considered taxable income by the IRS.
• Tax Reporting: Dashers must report all income, regardless of the amount. Earnings over $600 will receive a 1099-NEC form from DoorDash.
• DoorDash and the IRS: DoorDash reports earnings of $600 or more to the IRS using the 1099-NEC form.
• Tax Withholding: Unlike traditional jobs, DoorDash does not withhold taxes from earnings. Dashers are responsible for setting aside money for tax obligations.
• Quarterly Payments: Because DoorDash does not withhold taxes for you, you are expected to pay estimated federal taxes 4 times per year: April 15th, June 15th, September 15th, and January 15th. Your state may have an additional similar requirement. Failure to do so will often result in a penalty fee when you file your taxes at the end of the year.
• Self-Employment Tax: As an independent contractor, you will have to pay a 15.3% “self-employment” tax in addition to the income tax you would typically pay as an employee of a company.
• Tax Deductions: DoorDash drivers can claim various tax deductions, including vehicle expenses, equipment, phone bills, and health insurance.
• Mileage Deduction: Drivers can use the IRS's standard mileage rate or itemize vehicle-related expenses for deductions.

Although we try to be thorough, the information here doesn’t apply uniformly to all DoorDashers.  Variations could otherwise arise from your individual circumstances, state regulations, and financial decisions. So, you might want to seek more personalized advice from a tax professional.

For example: many of GigWolf’s Dasher reviewers report that they actually don’t owe any federal income taxes, year after year, because they are able to accrue so many deductions such that their tax bill falls to zero. When you have that many deductions, a lot of the advice in this post becomes unimportant: there’s no need to make quarterly payments or be worried about the self employment tax when your deductions will just wipe it all out.

Do DoorDash earnings even count as income?

The Internal Revenue Service (IRS) defines income as all money, goods, property, and services received in exchange for work or from other sources. Their broad definition doesn't discriminate between a salaried job, freelance work, or gig jobs. If you've earned it, it's income. And yes, that includes your DoorDash earnings.

The payment you receive for deliveries makes up the bulk of your taxable earnings. Tips too, whether received through the DoorDash app or in cash, count as taxable income. Just because it didn't pass through an electronic system doesn't mean it's invisible to the IRS.

Additionally, the revenue collection agency factors in all the bonuses or incentives that DoorDash occasionally grants its drivers. These could be tied to specific promotions, peak delivery times, or achieved driver milestones. 

Do I have to report DoorDash income?

If you’ve made $600 or more from DoorDash in the calendar year, DoorDash is legally required to send you a 1099-NEC form showing you exactly how much you earned. This is the number you’ll want to include in your income calculations when filing your federal and state income taxes.

That, however, doesn’t mean that you’ll be exempted with less earnings. While it's true that DoorDash might not send you a 1099-NEC for such amounts, you still have to report the income. 

Otherwise, failing to declare your DoorDash earnings could lead to penalties for late filing, late payments, and interest on unpaid amounts. 

Scott Jones, a Dasher of five years, cautions that even if you initially “get away" with not reporting income, the IRS may still catch up - he thinks audits are becoming more common for people doing jobs like Dashing.

Does DoorDash report to the IRS?

Like other companies that engage independent contractors, DoorDash is bound by U.S. tax laws to report certain earnings to the IRS.

They normally use the 1099-NEC form to detail non-employee compensation. If a Dasher earns $600 or more in a calendar year, DoorDash will dispatch the form both to the driver and the IRS. This dual-reporting system is meant to maintain transparency and ensure compliance with tax regulations.

Any inconsistencies between them could set off alarm bells in the IRS system, which could then lead to penalties, back taxes, and audits. 

“Doordash will turn in a copy of the 1099-NEC and it must match your info,” confirms Scott. “If you lie, or fail to put it down, they will know, and you may be audited and found guilty of tax fraud.”

Tax forms filled by DoorDash are released to Dashers in two ways –  electronically via Stripe, or physically via paper mail. 

For the digital option, Stripe sends out email invitations in early January. You’ll be prompted to set up a Stripe Express account, as well as provide consent for processing your 1099 form electronically. 

If you prefer a paper copy or happen to miss the e-delivery consent deadline, Stripe will mail the 1099-NEC form to your registered address. They are usually dispatched on January 31, but delivery may take up to 10 days due to postal delays.

How much should I set aside for taxes?

Your total annual income, which includes earnings from DoorDash and other sources, slots you into a specific tax bracket. Each bracket corresponds to a percentage of income that you're obligated to pay in federal taxes. 

For example, singles earning between $11,600 and $47,150 in 2024 fall into the 12% tax bracket. 

DoorDash drivers and gig workers are additionally subject to the self-employment tax, which covers Social Security and Medicare contributions. The current cumulative rate is 15.3%, with 12.4% going to the former and 2.9% to the latter. 

Conventional employees, on the other hand, are counted out because their employer pays it for them.

As for you, tax obligations apply both on the federal and state level. The local rates may however vary from one region to another. For instance, while Texas might not charge state income tax, California's rates can reach up to 13.3% for high earners.

Considering these factors, the general recommendation for DoorDash drivers is to reserve 20-30% of their earnings for taxes. This estimate has been derived from the average federal and state tax rates for the typical DoorDash driver's income bracket.

Scott himself emphasizes, “saving when you are barely scraping by seems unbearable, but not having the money to pay the taxes is worse.” 

Does DoorDash take out taxes?

In traditional jobs, employers withhold federal and sometimes state taxes from each paycheck, and the government consequently gets its dues without the employee having to make direct payments. 

DoorDash operates differently. Since drivers are independent contractors, the platform does not withhold any taxes from their earnings. The payment you receive after a delivery shift is your total compensation without any deductions. 

The onus is rather on you, the gig worker, to submit all your tax payments. And here’s the tricky part: you have to do it at least four times per year.

Ryan Shaw is one Dasher has single-handedly managed those tax obligations for three years now. As he admits though, “I would prefer mine withheld like they do in a conventional job.”

Dashers have to pay taxes four times per year

Because you don’t have an employer withholding taxes on your behalf, the IRS requires that you submit “estimated tax payments” every 3 months to the federal government. 

You essentially estimate your annual tax bill ahead of time and then distribute the payments across several months – preferably on April 15th, June 15th, September 15th, and January 15th. 

If your state charges income tax, you may need to do something similar at the local level as well. For example, California requires its state tax payments to be submitted three times during the year.

For Dashers who otherwise choose to skip the payments and, instead, file their taxes at the end of the year:

• Both the IRS and your state will include some penalty on your final tax bill. It could be a small amount of, say, a few hundred dollars. 
• But, if your income ends up being less than the minimum taxable amount, you won’t be penalized. And that’s because you never owed any taxes to begin with.

For side-hustler Dashers: you can adjust your withholdings instead of paying quarterly

If paying quarterly taxes seems too cumbersome, side hustle Dashers have the option of using their main job’s paycheck to offset taxes on their DoorDash income. 

You just need to fill out a new Form W-4, Employee’s Withholding Certificate as consent for your primary employer to deduct and channel more funds to the IRS. The revenue agency will even provide a Tax Withholding Estimator to help you work out the tax amounts beforehand – based on the estimated earnings from both the regular job and DoorDash.

You can probably contact your employer’s HR department for help with this, asking, “can you help me increase my tax withholdings from my paycheck?”

Do I have to file taxes if I made less than $600?

The often-mentioned $600 isn't a minimum taxable amount. Rather, it's the threshold at which DoorDash is required to send out a 1099-NEC form to its drivers. 

That cut-off doesn’t extend to tax filing. Earnings of $599.99 or less must also be reported on your tax return.

The amount might seem insignificant, but the IRS doesn’t see it that way. If it ever goes unreported, you’d be risking penalties, interest, and a lot of unnecessary stress.

Besides, by accurately reporting all DoorDash earnings, you get to stay in the good books of the IRS and take advantage of potential tax deductions and refunds. 

The IRS itself has even simplified tax reporting for individuals with lower incomes. Forms like the 1040-EZ make the process more manageable, allowing you to file your income without tinkering with the more complex standard 1040 form.

How to file your taxes

Typically, you’d work with an accountant, accounting service, or software like TurboTax to get your taxes filed.

But let’s talk about the specific forms you might be filing if you choose to do-it-yourself.

As an independent contractor, DoorDash doesn't provide a W-2 form for your earnings. Instead, you'll report your income using Schedule C (Profit or Loss from Business). 

This form lets you declare your DoorDash income and subtract any business expenses. The net profit or loss from Schedule C then goes to your primary tax form as part of the total taxable income. 

DoorDash drivers should additionally familiarize themselves with Schedule SE (Self-Employment Tax). This is where you work out the self-employment tax amount, covering both the employer and employee shares of Social Security and Medicare taxes. 

While at it, keep in mind that as a DoorDash driver, you're basically running a business. That means many of the associated business expenses – from gas costs to a portion of the phone bill or car insurance – can be deducted from your taxable income.

Tax Calculation

You can do the calculations manually on paper, but this is where tax software can come in handy. In particular, you might want to work with a tax management system that’s specifically configured for self-employed individuals. Or, you can simplify these calculations by using the “mileage deduction approach” (read on below). 

Options like TurboTax Self Employed or Quickbooks Self Employed will guide you through all the technicalities of gig work taxes. Some even come with intuitive prompts for managing deductions and filling out tax forms.

You can confirm the guidelines from the IRS. Their Publication 463 outlines the parameters for itemizing travel, gift, and car expenses, whereas Section 179 covers the criteria for equipment purchases.

How to manage your tax deductions

Tax deductions refer to specific expenses that the IRS allows you to subtract from your total income, thereby reducing the taxable amount. 

DoorDash drivers usually claim tax deductions based on their work-related expenses. A few of the many categories include:

• Vehicle Expenses: If you don’t use the mileage deduction approach that most Dashers use, you can deduct lease payments, interest charged on their car loan, as well as registration and license fees. 
• Supplies and Equipment: Expenditure on items like insulated bags, phone mounts, or chargers used solely for DoorDash deliveries are deductible.
• Mobile Phone and Internet Costs: If you use your phone primarily for DoorDash deliveries, a significant portion of the monthly bill can be deductible. But, when you have a separate phone just for work, the entire bill becomes deductible.
• Health Insurance: Self-employed individuals not covered by an employer's health plan may deduct premiums for health, dental, and long-term care insurance.
• Home Office Bills: If your house has a certain space reserved for managing DoorDash tasks, it could qualify for the home office deduction. 
• Bank and Credit Card Fees: Fees from a bank account dedicated to DoorDash are also deductible. The same applies to any fees accrued on credit cards meant for business operations. 
• Education and Training: You’re further allowed to subtract any cash spent on courses or materials for enhancing your skills as a DoorDash driver.  
• Professional and Legal Fees: Fees paid out to accountants, lawyers, auditors and the like for DoorDash-related services can be deducted.

To track all that, Scott offers his approach, “I bought a dollar store calendar that I put up in a closet. Every time I have an expense, I write the amount on the square for the date on the calendar.”

Mileage deduction approach for vehicle expenses

DoorDash drivers can choose between two primary methods for deducting vehicle-related expenses. One of them is the IRS's standard mileage rate. This is the way most Dashers do it, because it’s so much easier to track and will probably get you about the same deduction.

This rate represents the average cost of operating a vehicle per mile for business activities. It's derived from a comprehensive analysis of factors – including the average costs of fuel, vehicle maintenance, insurance premiums, and general wear and tear over time.

In 2022, for instance, the IRS set the rate at 62.5 cents per mile. That means a Dasher with 15,000 miles worth of deliveries could claim a tax deduction of $9,375.

Take it from Matt. “I've used this option over the years, and it has reduced my tax bill to only 5-10% of total income.” And he’s not alone. Because of its straightforward computation, mileage happens to be the most preferred tax deduction method among Dashers. 

To qualify, drivers must log each trip with details like the date, mileage covered, purpose (e.g., delivery or return from a drop-off), as well as the start and end points. 

You don’t have to do it manually, though. Apps like Everlance, MileIQ, and Stride now come with advanced algorithms and GPS that can track every mile. You could have them running in the background while logging your mileage, timestamping each trip, categorizing drive, and estimating deductions. Some of them even synchronize with the vehicle's odometer for precise tracking.

Matt confirms all that, after having used the free version of the Driversnote app. In his words, “all you have to do is tap on track mileage when you start working and then select stop tracking when your shift is over. The app will proceed to log your mileage along with all the details required for tax filing.”

Itemized approach for vehicle expenses

The actual expenses method is a more granular approach to deductions. Instead of a blanket per-mile rate, this method requires Dashers to itemize and calculate every vehicle-related expense. 

This includes not just obvious costs like fuel, but also prorated figures for vehicle depreciation (based on IRS tables for vehicle class and purchase year), specific maintenance tasks (like oil changes and tire rotations), and even a percentage of insurance premiums attributable to business use.

If you really want to optimize this deduction, we’d recommend keeping two separate logs throughout the year – one for mileage and another for all vehicle expenses. You can then evaluate deductions from both methods and select the more appropriate one for your DoorDash taxes.

“Keep all your receipts in a well-labeled ziplock,” advises Scott. “You’ll be able to write off all types of stuff used for work: DoorDash warmer bags, special insoles for your shoes, or a new phone.”

Ultimately, your decision to itemize should be based on a thorough comparison with the standard deduction. You’ll notice, for instance, that Dasher with an older, high-maintenance vehicle might benefit more from the Itemized method. On the other hand, someone driving a newer, fuel-efficient car over long distances might find the standard mileage rate more advantageous.

Using a tax deductions calculator 

If you find it challenging to keep up with all those tax deduction intricacies, there’s always the option of doing the math on automated tools and calculators.

”I prefer the standard mileage rate just because there are apps that can track and log everything,” says Ryan. “It's just less numbers and paperwork to keep up with.”

As a self-employed independent contractor, you don’t need a calculator that is specific to DoorDash; any calculator or software built for self-employed individuals will do.

Take, for instance, the TurboTax Self-Employed Tax Deductions Calculator. It’s an intuitive web-based system that connects with gig workers and helps them identify potential tax deductions specific to their line of work. Inside its engine are automation rules that have been configured according to the attributes of more than 30 freelance professionals.

To get an estimate, just type in details about your DoorDash income, miles, and expenses. The calculator will then pick up from there and instantly establish the deductibles that you stand to gain. 

Always keep in mind, though, that these are just estimates. So, a tax deduction calculator shouldn’t be your sole resource. Consider cross-referencing your results with a tax professional’s analysis or the software you’re using to file your taxes for more accuracy. 

How to use DoorDash’s tax address and EIN

Dashers can find DoorDash's official address on the 1099-NEC form they receive, listed under the "Payer's" details. This is the address the IRS recognizes for any official correspondence with DoorDash.

That said, the company officially operates as DoorDash Inc, under the IRS taxpayer ID (EIN; Employer Identification Number) 46-2852392. Its business address is:

South Tower, 8th Floor,

303 2nd Street,

San Francisco, California,

ZIP 94107.

You should, however, never use this DoorDash tax address as your own, nor as your “employer”. As an independent contractor, you’re considered to be a completely separate entity from the platform.

You may be asked to provide the EIN and address of the company that provided you with most of your self-employed income; that’s where you should use this information. Remember that DoorDash is not your employer; you are self-employed, and likely operating under your own Social Security Number (SSN), not DoorDash’s EIN. 

Differences in tax obligations by state 

Every state in the U.S. has its unique tax code, which may significantly influence the amount a Dasher owes. 

For example, California's state income tax rates range from 1% to 12.3% for individuals. This means a high-earning Dasher could face a steeper state rate compared to someone in Pennsylvania, where a flat 3.07% tax applies to all taxable income.

Then there are states like Texas, Florida, and Nevada, which impose no state income tax at all. But this doesn't always translate to lower tax bills. Texas, for instance, offsets its lack of income levies with higher property and sales taxes.

Some states also offer various deductions for self-employed individuals or gig workers. New Jersey is one prominent example that allows self-employed individuals to deduct health insurance premiums if certain conditions are met.

In that case, we’d recommend that you check and familiarize yourself with your state’s income tax requirements.

Get started dashing

Managing your taxes as a Dasher might be a little more complicated than you expected. But,now that you understand the obligations and processes, you can go ahead and pursue gig jobs without compromising your IRS standing. Sign up today to start dashing (pending Dasher approval and local availability).