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Drivers for rideshare companies like Lyft or Uber are considered self-employed and required to report income on a Schedule C come tax time. (Depending on how much they earn, they may be required to pay quarterly estimate taxes.)

A forward-thinking Uber driver would do well to reserve a portion of each paycheck received to go toward taxes (whether they're paid quarterly or annually). They can estimate their taxable income based on how much they plan to drive that year (plus any other income) and use that to ballpark their federal tax bracket.

Is it that simple--that they just reserve 15% (or whatever the bracket happens to be) of each paycheck? What other factors should be considered when estimating the percent of each paycheck to save for taxes?

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    As long as the rideshare income itself does not push you through multiple tax brackets, then yes, a simple rule should be adequate. Note, though, that you will also need to pay self-employment tax on that income, so it's not just your income tax bracket. – BrenBarn Feb 20 '16 at 2:32
  • @BrenBarn Self-employment tax is paid only on the rideshare income, not on the total taxable income, right? – hairboat Feb 20 '16 at 2:39
  • Yes, sorry, that's what I meant by "that income". – BrenBarn Feb 20 '16 at 3:48
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You have three types of tax to consider:

  1. Your federal income tax, which will be based on your marginal tax rate. Keep in mind that you might push from one tax bracket to the next, so the marginal rate may increase.
  2. Your state / local income tax. Since you didn't specify a jurisdiction, this may or may not apply, but it probably follows the same basic format as federal albeit with its own rates and tax brackets.
  3. Self-employment tax, which is basically paying social security and medicare. In 2016 that's going to be 15.3% on your self-employment income. (Other income is not subject to this tax, like from a "regular" job or interest.) This maxes out at some income level, but that level is higher than you're looking to get right now if you're currently worried about the 15% tax bracket.

To summarize, a good estimate will be (expected income) x [(marginal federal rate) + 15.3% + (marginal state / local rate)].

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  • Looks like that max was $118,500 in 2015 if I'm understanding this correctly? irs.gov/Businesses/Small-Businesses-&-Self-Employed/… – hairboat Feb 20 '16 at 2:54
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    Yes. FYI- I think the summary at this link is more concise: ssa.gov/pubs/EN-05-10003.pdf – user32479 Feb 20 '16 at 2:56
  • So it looks like saving 15.3% + predicted marginal rate out of each paycheck would be a prudent estimate. – hairboat Feb 20 '16 at 3:05
  • Yes, if you have no state / local tax. Otherwise add that too. – user32479 Feb 20 '16 at 3:06
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    Note that in Canada, you have to pay GST (provincial sales tax) on the whole amount of your income; Uber does not do this on your behalf. I mention this because normally you would not have to do so until you pass $30,000 per year in income. OP is in the U.S. so I mention this only to note that state taxes may be more complicated and expensive than you think. – ChrisInEdmonton Feb 20 '16 at 14:08
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@Brick answered the question as asked. But I'd like to point out something you might not realize. As stated, the money is self-employment income. In this capacity, you have the ability to deduct certain expenses off the top. Your car costs, for example, the business miles, essentially every mile you drive with a customer in the car, is a 54 cent deduction. You also have the delightful ability to open a Solo 401(k) and sack away some money there. There are a number of other benefits to the self-employed, I'd suggest you do more research and take advantage of our tax code.

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