The 3 Effects of Being Self-Employed With Shipt

When you work for Shipt as a Shopper or Driver, you’re considered a self-employed, independent contractor, not an employee. 

That distinction is important: independent contractors have a lot more control over their schedules and how they do their work than employees do, but they also have more responsibilities. 

As an independent contractor working for Shipt, you’re essentially running your own small business, and you’re your own boss. If that’s new to you, it can take some getting used to. 

Michelle Wright, who has been a Shipt Shopper since 2019, says, “as a self-employed Shipt Shopper, the full liability falls upon me. The first and, of course, foremost is my tax liability. Being a gig worker means that I am responsible for maintaining accurate records on my time and mileage as well as filing estimated taxes to the IRS in anticipation of any year-end liability. This includes Self -Employment tax and Social Security.”

She also mentions that she’s “responsible for maintaining the proper vehicle insurance” and health insurance — which is especially important considering that she’s not eligible for state disability and worker’s compensation as an independent contractor. 

But despite all the increased responsibilities, being self-employed can give you unparalleled freedom and flexibility and be an incredibly rewarding experience once you’re used to it. Here, we’ll cover all the essentials you need to know to get your new business venture up and running as quickly and painlessly as possible. 

Do you need an LLC or corporation to work for Shipt?

If this is your first time being self-employed, you may be wondering if you need to officially start your own company before beginning your work for Shipt. 

The short answer is no — setting up an LLC (limited liability corporation) or officially incorporating in some way is not necessary to work for Shipt. Most Shipt Shoppers and Drivers don’t set up companies for their delivery work.

However, there’s nothing wrong with setting one up, and it can make some things easier. An LLC shields your personal finances from business liabilities so that if someone sues your business, your house, car, and bank account won’t be on the line — only your business assets will be. 

As a Shipt worker, most of these liabilities will be covered by your auto insurance policy anyway, but if you want some extra protection, or if you like the idea of having a registered company, there’s nothing stopping you from doing so (except maybe the fees associated with registering). 

How do Shipt taxes work? 

Perhaps the biggest difference between self-employment and traditional employment is how you pay your taxes. As an independent contractor, you’ll need to pay self-employment tax and make quarterly estimated payments, which will typically cause your tax burden to be higher than it would be if you were traditionally employed.

But the flipside is that you can take advantage of tax write-offs by deducting business expenses, which will make your taxes more manageable. 

James Tuliano, who has been doing Shipt since 2020, says that Shoppers and Drivers can use Found to help make expense tracking easier. “Shipt partnered with a company called Found, which helps you keep track of Shipt-related bookkeeping, tracking your tax liability and business-related expenses, and they offer Shipt shoppers a $50 bonus if they sign up for it!”

Taxes are a deep subject, so make sure to check out our dedicated post on how taxes on Shipt income work — this section will just cover the main points. 

Does Shipt take out taxes?

No, Shipt doesn’t withhold any taxes from your paycheck. As a Shopper or Driver, you won’t get a W2 from Shipt, which is where you’d see your tax withholdings. 

Instead, you’ll get a 1099 from Shipt in mid-January if you earn more than $600, which will detail all of your earnings for Shipt in the past year. That’s what you’ll use to file your taxes. 

Keep in mind that 1099s are only provided to contractors that earn at least $600 working for a specific client or company. So, if you earn less than $600 in a year working for Shipt, you won’t receive a 1099. But even if you don’t receive a 1099, you still need to report your earnings and pay taxes on them — you’ll just report that income as miscellaneous income on your tax return instead of reporting the 1099. 

You’ll have to pay four times per year (but that doesn’t mean paying more)

Self-employed people need to make estimated tax payments to the IRS four times per year. However, that doesn’t mean that you need to pay more, it just means that you pay your normal taxes in installments throughout the year. The IRS requires this so that independent contractors stay on top of their taxes and don’t end up with a huge tax bill in April that they can’t cover. 

The idea is that you estimate how much you’ll owe in taxes and pay that amount in four payments instead of one big payment. If you estimate well, you won’t need to pay anything when you file your taxes. If you underestimate how much you owe, you’ll owe the difference between your estimates and your actual earnings (if it’s a severe underestimate, you may get an underpayment penalty). If you overestimate your tax burden, you’ll receive a refund. 

If you don’t make your estimated payments at all, you’ll likely be charged a penalty fee. 

Let’s break that down a little more to make it clearer. Here’s the typical payment schedule:

1. By April 15, pay estimated taxes on your income from January 1 - March 31.
2. By June 15, pay estimated taxes on your income from April 1 - May 31.
3. By September 15, pay estimated taxes on your income from June 1 - August 31. 
4. By January 15, pay estimated taxes on your income from September 1 - December 31 of the previous year. 

There’s one more thing you need to know: you have a choice between using the current or previous year as a reference for your estimates. 

For example, let’s say that last year you owed $4,000 in taxes, and this year you expect to owe $8,000. You can choose to make four payments of $1,000 (totaling $4,000) based on your previous year’s tax burden, or you can choose to make four payments of $2,000 (totaling $8,000) based on your current year’s expected tax burden. 

This does not mean that you can choose to pay less. If you choose to go by the previous year, and you earn more in the current year, you won’t get a penalty for underpaying, but you’ll still need to pay the difference. If you estimate based on the previous year, and you make less in the current year, you’ll get a refund. 

What about self-employment tax?

When you’re an employee, your employer withholds some taxes from your paycheck and pays them directly to the IRS to cover social security and Medicare. Then, you pay the remaining amount for those when you file your taxes — you and your employer essentially split the social security and Medicare bill between the two of you. 

When you’re self-employed, you’re considered your own employer and your own employee, which means that you have to pay both halves of the tax burden — that’s self-employment tax. 

The self-employment tax rate is 15.3%, which is double the 7.15% you’d normally pay as an employee. 

Make sure to take advantage of write-offs

So far, you may be thinking the tax situation looks grim. But there’s a light at the end of the tunnel: tax write-offs.

As an independent contractor, you can deduct your business expenses from your income, which lowers your taxable income. For example, if you made $50,000 and had $10,000 in business expenses, you could deduct those expenses, lowering your taxable income to $40,000. Then, you’d only have to pay taxes on $40,000 instead of $50,000. 

Tax write offs can make a huge difference in how much you owe, so keep careful records of your expenses. As a Shipt Shopper or Driver, you’ll be able to write off gas, vehicle repairs, and wear and tear that’s related to your work for Shipt so long as you keep receipts and detailed records of all your business purchases — you’ll need those in case you get audited.  

To make things easier, every year, the IRS sets a standard mileage rate, which estimates the cost of vehicle ownership per mile. In 2023, that rate was $0.655/mile. If you keep track of how much you drive for Shipt, you can just multiply your mileage by that rate, and deduct the amount from your income. You can either use your actual expenses or the standard mileage rate, not both. 

For example, if you earned $50,000 and drove 12,000 miles for Shipt in 2023, you could deduct $7,860 (12,000 miles * $0.655/mile) from your income, bringing your taxable income down to $42,140. 

Note: Everyone gets to take advantage of the standard deduction, which is $13,850 for single filers in 2023. You can either use the standard deduction or deduct your expenses, so you’ll usually go with whichever is more. 

An example tax calculation

Disclaimer: we're offering this example to help you understand a rough idea of the concepts involved here. We cannot offer tax advice; please consult your tax advisor or tax software for advice related to your specific tax situation. 

To give you a better idea of what you’re in for, here’s a short, simplified example of how all of this comes together in practice. 

Let’s pretend that you made $50,000 driving 25,000 miles for Shipt (these numbers aren’t based on any real world examples and are entirely made up for example purposes). The first thing we can do is calculate your deductions:

$0.655/mile * 25,000 miles = $16,375

Then, subtract that from your earnings:

$50,000 - $6,550 = $33,625

That brings your taxable income down to $33,625. You still need to report your full income, but you won’t be taxed on the full amount.

Now, let’s apply self-employment tax: 

$33,625 * 0.1523 = $5,121.09

We’ll round that to $5,121 for simplicity’s sake. You can deduct 50% of this amount on your income taxes: 

$33,625 - ($5,121/2) 

That brings your taxable income for federal income tax purposes down to $31,065.

We’ll skip over the calculation for federal taxes since it’s a bit complex and isn’t unique to self employment. Federal taxes on this income would likely come out to around $3,506.80. Combined with self-employment taxes, that brings your federal income tax burden to around $8,628. 

As a self-employed individual, you would owe 25% of these taxes as part of your estimated taxes, so you’d pay $2,157 approximately every three months. 

How does that compare to what you’d owe as an employee?

We’ll skip over the calculation for employees here — the calculation is largely the same as above, except we’ll be taking the standard deduction instead of using mileage, and we’re only factoring in half of the self-employment tax rate. 

As an employee, you could expect to owe around $6,829 — around $1,800 less than you would as an independent contractor. 

You’re in charge of your auto and health insurance

If you were doing deliveries as a full-time employee, you’d likely be using a company car covered by your employer’s auto insurance, and you’d get health insurance coverage as part of your benefits package. 

When you drive or shop for Shipt as an independent contractor, you have to take care of both of these on your own. 

You may want to increase your auto coverage

All Shoppers and Drivers need to use a car that’s covered by auto insurance. Shipt only requires that Shoppers and Drivers are covered by their state’s minimum insurance requirements, so if you own a car already, then you probably already have that in place. 

But from a financial perspective, going with the minimum requirements isn’t always the best move given the increased risk you’re taking on by driving more often. Plus, your auto insurance company will likely not be too happy to find out that you’ve been using your car for work, and they may reject claims from accidents that occur while you’re on the clock. In fact, some insurance companies will drop your coverage entirely if they find out you’ve been doing gig work. 

Matthew Desmond, who has been working with Shipt for three years and has earned almost $100k, says that many insurance companies “are now asking flat out if you are doing gig work.  Comparison shopping is where it's at.”

The best plan of action is to nip this in the bud by speaking with your insurer about what your plan does and doesn’t cover. Most insurers offer commercial coverage, and some have add-ons for gig work. 

For more information, check out our full post on Shipt and car insurance, where we go deeper into all the risks and options available to you. 

Don’t forget to enroll in a health insurance plan

Self-employed people are responsible for finding and paying for their own health insurance coverage. Luckily, your premiums can be used as tax write offs to help you shoulder the cost. 

Shipt has a partnership with HealthSherpa, an insurance broker that can help you find suitable health insurance policies quickly and painlessly. You can also purchase a plan through your state’s health insurance marketplace. 

Shipt also partners with Stride, another insurance broker that offers similar services. 

Health insurance is a complex topic, so check out our full post on getting health insurance while doing Shipt for more information. 

The lifestyle benefits can make it all worth it

Being self-employed isn’t easy: you have a lot more responsibilities, and it’s often more expensive.

But for many people, you simply can’t put a price tag on the freedom you get from self-employment. Being your own boss, making your own schedule, being in control of your earnings potential — those are all things that self-employed people thrive on, and they’re more than willing to take on the extra costs to sustain that lifestyle. 

Matthew adds that it’s important to stay grounded and have realistic expectations when beginning though. “Shipt is hard work.  Many metros have highly matched members and preferred Shoppers. It isn't as easy to break into this as it was several years ago. I've seen many people quit good jobs to do Shipt full time only to end up being worse off financially.”

That said, there are still countless Shipt Shoppers and Drivers who love the job because it allows them to work around their busy college schedules, to be available for their kids in an emergency, or to work odd hours that a traditional job wouldn’t accommodate. 

James shares that it’s “also great for folks that already have a full-time job and are looking to earn some extra income, which is my situation. I've been working as a Shipt Shopper for three years off and on and have had an unrelated office job the entire time as well. The flexibility means I don't have to work if I feel particularly exhausted from my full-time job and that I can work on holidays, weekends, and in the evenings after my other job has ended.”

Whatever the reason is, working for Shipt gives you the flexibility to schedule your work around your life and not the other way around. 

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