Being self-employed means taking responsibility for your career and finances, an often exciting prospect. For example, as a full-service Instacart shopper, you’re in charge of when and how much you work, which lets you build the ideal schedule for your lifestyle.
However, one aspect of being your own boss is much less exciting than the rest: the self-employment tax obligations. They can feel overwhelming, especially if you started working for Instacart as a side hustle without knowing the implications.
Fortunately, it becomes more manageable once you get past the intimidating jargon and learn the basics. This practical guide to Instacart taxes will help you do that. Let’s explore what you should know about your responsibilities and how to fulfill them.
There are two types of Instacart shoppers, and the category you fall into determines your tax situation.
First, we have in-store shoppers. Their role involves shopping and staging orders but not delivering them to customers. They don’t need a car and only work in one store at a time.
In-store shoppers are considered part-time employees of Instacart. In other words, they’re not self-employed! If you fit into this category, your tax obligations are no different from those of someone who works directly for a grocery store.
Instacart automatically withholds taxes from your paychecks and sends you a Form W-2 at the end of each year. Your only job is to report your wages come tax time and pay any remaining taxes you owe.
Second, we have full-service shoppers, which most people probably think of when they imagine working for Instacart. They're also the ones we're focusing on in this article. Their role involves picking up orders and delivering them to customers, usually in a car.
Full-service shoppers are independent contractors who work for themselves. They’re not employees. If you’re in this category, any money you earn from Instacart is self-employment income, which creates a more complicated tax situation.
Instacart doesn't withhold money on your behalf, and they’ll send you a Form 1099-NEC instead of a W-2 at the end of the year. Also, you’ll be responsible for making estimated tax payments each quarter and completing additional forms at tax time.
If you’re a full-service Instacart shopper, you probably file your taxes as a sole proprietor or a single-member limited liability company (LLC). In that case, you typically must file the following additional tax forms:
Schedule 1: This is where you report any taxable income from sources other than W-2 wages, including net business earnings from Instacart.
Schedule C: This is where you report your self-employment income and tax deductions to explain how you calculated the net business earnings shown on your Schedule 1.
Schedule 2: This is where you report any taxes you owe for income other than W-2 wages, including self-employment taxes on net business earnings from Instacart.
Schedule SE: This is where you calculate the self-employment taxes you owe to explain how you got to the amount shown on your Schedule 2.
These supporting schedules help federal and state tax agencies verify the amounts you report on your Form 1040, which is the document we’re actually referring to when we say the term “tax return.”
Every individual taxpayer must file it, whether they’re an employee or self-employed. It’s where you report personal details like your name and Social Security Number and summarizes your entire tax situation.
Fortunately, Instacart provides tools to help make getting the information you need for these tax forms easier. Read on to learn more about these.
When it comes to calculating your Instacart income as a full-service shopper, you should have two types that you incorporate:
Guaranteed pay from Instacart
Variable tips from customers
Fortunately, tracking these is easy. The Instacart app should keep detailed records of the amounts for you, and there’s no need to differentiate between the two sources on your tax return.
You should also receive a Form 1099-NEC from Instacart by January 31 that confirms your gross income, assuming you earned $600 or more through them in the prior year.
Instacart uses Stripe to share electronic copies of the form, so you must register for an account to get yours. Otherwise, you’ll get a paper copy, which may arrive up to 10 business days later.
What is a tax deduction?
“Write-offs”—also referred to as “deductions” or “business expenses”—are tax breaks that help you lower your tax bill. If you’re self-employed, you almost certainly have write-offs.
The purchases you make to keep your business running smoothly are considered “business expenses.” You can use those business expenses to reduce the income that you’ll pay taxes on.
You’re allowed to claim tax deductions for “ordinary and necessary” expenses you incur in the normal course of business. That means they must be common in your industry and helpful for your trade.
When you claim a tax deduction, you subtract it from your business income, indirectly reducing the amount of taxes you owe. Let’s look at some examples of deductions that most Instacarters should be tracking and claiming.
Your business vehicle expenses are easily the most significant source of tax deductions as a full-service Instacart shopper. Since everyone needs and uses a car to complete orders, the costs associated with it are tax-deductible.
Here are some of the specific expenses you can deduct:
Gas and other fuel costs
Repairs and maintenance
Car washes and cleaning
Interest on auto loans
Depreciation on the value of the vehicle
Parking fees and tolls
Unfortunately, you usually can’t claim the full amount of each cost. You can only write off the business portions, which you can calculate in two ways.
First, there’s the actual expense method. It involves tracking all your costs and your personal and business mileage, then multiplying the costs by the percentage of your mileage that was for business.
Second, there's the simplified option. It only requires that you keep track of your business mileage. You multiply the total by a standard rate that’s updated periodically for inflation. In 2023, it’s 65.5 cents per mile.
Neither option is inherently better than the other. It's often wise to calculate both after your first year and use the highest. Just know that if you ever use the actual expense method, you can only switch to the simplified one once you get a new vehicle.
Vehicle-related expenses will likely make up most of your tax deductions as an Instacart shopper, but they’re not the only costs you can write off. Some other good ideas include:
Telephone bills: You need a phone to track and receive orders, navigate, and communicate with customers. As such, you can deduct a portion of your phone costs equal to the percentage of your business usage.
Shopping accessories: Items that make you a more effective Instacart shopper may be tax-deductible. For example, you might be able to write off coolers you use to store frozen goods during deliveries.
Professional services: This refers to the cost of hiring expert help for a business-related challenge. For example, paying a Certified Public Accountant to prepare your tax return is tax-deductible.
Keeping track of your business income and tax-deductible expenses is essential prep work for filing your Instacart taxes, but it’s also necessary for informing your quarterly estimated tax payments.
As a reminder, these are the self-employed person’s substitute for tax withholding. You must make them if you expect your business to owe $1,000 or more in taxes for the year. Note that they go toward your ordinary income and self-employment taxes.
Interestingly, they’re not actually due at the end of each quarter. Here are the deadlines:
January 15 (of the following year)
To avoid penalties, you must make your estimated tax payments on time, and the total must equal either 100% of the taxes you paid in the previous year or 90% of what you end up owing for the current year.
If you have records of your business income, tax-deductible expenses, and quarterly estimated tax payments, you have everything you need to file your Instacart taxes. Use them to fill out Form 1040 plus Schedules 1, 2, C, and SE.
You must submit everything by April 15 to avoid late filing penalties or October 15 if you file an extension. Generally, it’s best to file electronically, which you can do using tax preparation software or a tax preparer.
If you still find the sound of this process overwhelming, don’t worry. Many small business owners feel similarly. After all, you have plenty of other responsibilities to worry about.
Fortunately, you don’t have to handle this one all by yourself. You can make things much easier using Found. It’s a business checking account designed to simplify the paperwork aspects of self-employment, including taxes.
Not only can it estimate your future tax bill in real-time, but it also has an auto-save feature that sets aside the perfect amount for your estimated tax payments each time you get paid. Found can even categorize your expenses to help ensure you don't miss a deduction, and you can track mileage within the app. Sign up for Found today and make your taxes less taxing!
Whether you’re an in-store or full-service shopper, you must report all Instacart income you earn on Form 1040 and pay taxes on it. However, the process is more complicated for full-service shoppers.
In-store shoppers are employees and generally only need to report their W-2 wages on Form 1040 and pay any remaining taxes you owe.
Full-service shoppers are independent contractors. They must make quarterly estimated tax payments and fill out additional tax forms, such as Schedules C and SE.
Whether or not Instacart takes taxes out of your earnings depends on your status as an in-store or full-service shopper.
In-store shoppers are employees, so Instacart withholds money from their paychecks. Full-service shoppers are self-employed, so they don’t benefit from tax withholding and must make estimated tax payments instead.
Fortunately, Instacart tracks your mileage for each order. That includes your drive to the grocery store and to drop goods off at each customer.
However, Instacart doesn’t organize the information in the most readily accessible way. It doesn't summarize your total mileage in a calendar year. Instead, you must review the records for each order and add them together manually.
Instacart earnings are considered ordinary income for tax purposes and are subject to progressive tax brackets from 10% to 37%. The more money you make, the higher the tax rate on your most recent dollar.
If you’re a full-service shopper, you’re also subject to self-employment taxes. The tax rate is a flat 15.3% on 92.35% of your net earnings.
Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.
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