Lyft vs. Uber: Lyft Doesn’t Actually Report Most Driver Income to the IRS

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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Comments

  1. 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.

  2. 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.

  3. Almost certainly lyft drivers are tipped at a significantly higher rate, due to ease of tipping.

  4. Since the rate cuts I tip Uber drivers. When your pay is cut in half the expectation changes.

  5. 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?

Leave a Reply

Your email address will not be published. Required fields are marked *