Whether or not you receive a tax statement for funds you receive doesn’t actually affect the tax you owe. It’s a big deal in frequent flyer circles that Citibank has in the past reported bank bonuses on a 1099. The IRS knows that value and so consumers have no choice but to report it on their taxes.
Of course, if it’s income they should be doing that anyway. And if it isn’t income, a bank reporting it to the IRS doesn’t in and of itself make it taxable. (Nor is the value reported on a 1099 form final, you can dispute it.)
Whether or not you get a 1099 doesn’t affect income being taxable — just whether the IRS knows to go looking for the income. Of course if you’re audited, and depending on how thorough of an audit, they may find the income anyway.
This is a big issue for on-demand platform companies like Uber and Lyft, and it’s one reason that some drivers prefer Lyft over Uber: less tax reporting.
Airbnb, Etsy, and Lyft only send out tax reporting to people making $20,000 a year.
The companies are required to notify the IRS of that income — and send service providers a 1099-K form of their yearly earnings to file with their tax returns — only if they earn at least $20,000 and have 200 or more transactions in a year. The rule applies only to companies that get paid by credit card.
On the other hand, “Uber sends every one of its drivers a 1099K and reports their income to the IRS, regardless of income earned.”
An IRS spokesperson says that the agency intends to issue guidance soon on requirements for 1099-K reporting below the $20,000 threshold. They’ve been talking about doing that for a couple of years already, however.
Interestingly, platform companies are reporting income not on 1099-MISC (which would be used for payments to independent contractors, and would have only a $600 threshold) but 1099-K — which is what Paypal would send to its large volume customers. It’s the form for payment settlement entities to report payments to recipients, treating independent contractor drivers as pass-through recipients of the funds.
No doubt in the absence of updated guidance Lyft and others have reliable advice from good tax counsel. And no doubt most of Lyft’s drivers who are driving irregularly will neither report nor get audited. I’ve always played such things more cautiously, myself. Nonetheless, this likely represents a big advantage for Lyft in attracting drivers as they enter price wars with Uber. A driver might expect to keep 100% of the funds from Lyft versus having their net reduced by their marginal tax rate (and make tax deposits) with Uber.
Lyft is a big enough company that this carriers some risk for drivers. I don’t see any reason the IRS could not get this data latter and them come after the drivers for unpaid taxes. If I was going to try to earn off the record income I would probably try to earn the money in cash and avoid payments from large companies which could soon go public/be bought by a public company.
The flip side, for the drivers who do gross over $20K, is the way tips are handled. Lyft tips are done thru the app and are presumably included in the amount reported to the IRS. Uber tips are cash only, and very likely never declared.
Almost certainly lyft drivers are tipped at a significantly higher rate, due to ease of tipping.
Nobody is tipping Uber drivers.
I always give a tip to Uber driver since they cost lowest price in Indonesia compared to regular taxi and other service.
Since the rate cuts I tip Uber drivers. When your pay is cut in half the expectation changes.
That is interesting. I like to talk to my Uber and Lyft drivers about why they chose to sign up with each respective one, but I’ve never actually gotten this answer before. I wonder how many drivers on each side actually know how tax is arranged in the competing service?
Ok so if you make 19,000 in a calendar year, u mean I dont have to worry about paying taxes??? How about if you have some government help and they always want to know if u have any income, and if I don’t have to report my taxes then the government help one gets wont know either??? I mean life is hard and extra money is always welcome into ones life, but what does one do when they want to make more and get out and back into the workforce to be told this little tid-bit of information. I mean unless u have immense amount of money, u probably wont care, but for those just getting by, its like “oh my what do I do be honest or no”…..Im a pretty honest person (c’mon we all lie whether big or small, our government lies and cheats us the most) and I had to take care of an elderly parent for 8 years, gave up my life to take care of them and now that they have passed and I want to go back out there and work all I hear is “u dont have experience”…..well how do I get it if u don’t let me get it……so lyft driving is the only thing left until I get out of school for obtaining my CDAC (drug and alcohol counselor) until then I barely make ends meet. So I signed up for lyft…. I downloaded all my quick books software to keep track of receipts, gas, mileage, oil changes, repairs, car ins, mobile phone and ready to rock and become this independent contractor and then im told I dont have to report it unless its 20,000 or more…. Im a little scared….. I would be mad if I could actually have done that and keep it all, and here I go reporting it, but then how do I know my little check I do get from the government wont get seized or the other help I get with rent wont get taken away… Hmmmmmm a dilemma for one who wants to be honest, but needs more and wants to one day be more self sufficient. Im perplexed…
Ok so if you make 19,000 in a calendar year, u mean I dont have to worry about paying taxes??? How about if you have some government help and they always want to know if u have any income, and if I don’t have to report my taxes then the government help one gets wont know either??? I mean life is hard and extra money is always welcome into ones life, but what does one do when they want to make more and get out and back into the workforce to be told this little tid-bit of information. I mean unless u have immense amount of money, u probably wont care, but for those just getting by, its like “oh my what do I do be honest or no”…..Im a pretty honest person (c’mon we all lie whether big or small, our government lies and cheats us the most) and I had to take care of an elderly parent for 8 years, gave up my life to take care of them and now that they have passed and I want to go back out there and work all I hear is “u dont have experience”…..well how do I get it if u don’t let me get it……so lyft driving is the only thing left until I get out of school for obtaining my CDAC (drug and alcohol counselor) until then I barely make ends meet. So I signed up for lyft…. I downloaded all my quick books software to keep track of receipts, gas, mileage, oil changes, repairs, car ins, mobile phone and ready to rock and become this independent contractor and then im told I dont have to report it unless its 20,000 or more…. Im a little scared….. I would be mad if I could actually have done that and keep it all, and here I go reporting it, but then how do I know my little check I do get from the government wont get seized or the other help I get with rent wont get taken away… Hmmmmmm a dilemma for one who wants to be honest, but needs more and wants to one day be more self sufficient. Im perplexed…
Dear Ms Tinna,
Hi there, my name is Jerry.
I recommend you report it considering you’ve already invested time, money and energy preparing for it just in case you’re audited, plus, it looks good for a better credit score and makes easier for a potential seeking, new career in your continuing search. We all need to possess proof of income legally in order to fully benefit from our economic Capitalist birth Rights and/or as a legal citizen. Good luck to you, and I wish you well.
Bests,
Jerry