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ResourcesAccounting and Taxes

How to File Your Shipt Taxes

Accounting and TaxesDecember 07, 2023

Working for Shipt allows you to earn income in several different ways, including shopping, driving, and referring others to join. It's a highly flexible arrangement that can be a lucrative side hustle or even your full-time gig.

However, making money through Shipt has significant tax implications, and you can't afford to ignore them. Let's explore what you need to know to file your Shipt taxes correctly.

Understanding Shipt Taxes

Whether you're a shopper or a driver, working for Shipt makes you an independent contractor. In other words, you're self-employed, not an employee. As a result, your tax situation is different from those who work a traditional 9-to-5.

One of the primary differences is that your net business earnings (your business income minus your tax-deductible expenses) are subject to self-employment taxes on top of the ordinary income taxes we all have to pay.

The self-employment tax comprises the 12.4% Social Security tax and the 2.9% Medicare tax. Employees get to split these with their employers, but self-employed people must pay the combined 15.3% on their own.

Meanwhile, the ordinary income tax is progressive. That means the more money you make, the higher the tax rate on your last dollar earned. Federal tax brackets for 2023 range from 10% to 37%, while state rates vary.

In addition to the differing tax rates, self-employed people have increased tax obligations throughout the year. That primarily includes the following:

  • Filling out additional tax forms related to self-employment

  • Tracking your business earnings and tax deductions

  • Making quarterly estimated tax payments instead of tax withholding

Let's explore these in detail to help you understand your responsibilities and how to fulfill them.

Shipt Tax Forms

An independent contractor can file their business taxes using several legal entity structures, but sole proprietor is the default. If you haven't filed any paperwork or paid any money to pick something different, it's safe to assume that's your tax classification.

In that case, you'll typically have to complete the following tax forms each year:

  • Schedule 1: This is the form where you report your net business earnings and any other income that isn't wages.

  • Schedule C: On this form, you must provide the details of your business income and deductible expenses. It explains in detail how you got to the net business earnings shown on Schedule 1.

  • Schedule 2: This is the form where you report the self-employment tax you owe for your net business earnings. You must also report the taxes you owe on any other income that isn't wages.

  • Schedule SE: This is where you show how you calculated the amount of self-employment taxes shown on your Schedule 2.

Each of these are supporting schedules, which means they help federal and state tax agencies understand how you calculated the amounts reported on your Form 1040. 

Form 1040 is the official Internal Revenue Service (IRS) term for your individual tax return, which employees and sole proprietors alike must file. It contains your personal identifying information and summarizes your tax situation for the year.

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Shipt Income

To file your Shipt taxes correctly, you must know how much money your business activities generated during the tax year. You can earn three types of income through Shipt, including:

  • Base pay

  • Bonuses

  • Customer tips

Fortunately, you can lump all three types of income together on your tax return. They're all ordinary business income for tax purposes.

Shipt also provides plenty of assistance in keeping track of the amounts. You should be able to find a detailed breakdown of your earnings in your delivery history, which you can access from the shopper app. It'll list the payouts for each order, including tips.

In addition, Shipt will send you a digital copy of Form 1099-NEC via Stripe if you earn more than $600 on the platform. It's an official tax document that reports your gross income to you and the IRS.

If you meet the annual income requirement, Stripe will typically email you by mid-January to let you know. The message should contain instructions for downloading your tax forms, which must be available by January 31.

Recording Shipt Tax Deductions

Just as important as tracking your income is recording your business expenses. Commonly referred to as tax deductions, these are costs you incur in the regular course of business that the IRS lets you subtract from your income on your tax return.

That reduces the earnings you owe taxes on, indirectly lowering your annual tax bill. To be eligible for deduction, costs must be ordinary and necessary, which basically means a reasonable person would see that they contribute to your operation.

Here are some potential tax deductions for Shipt contractors to help make sure you understand the concept and aren't missing any.

Examples of Shipt Tax Deductions

Whether you’re a Shipt shopper or driver, you must deliver groceries to customers in your car. Fortunately, the expenses you incur due to the business use of your vehicle are tax-deductible.

For example, here are some vehicle expenses you should be able to write off:

  • Auto insurance

  • Auto loan interest

  • Depreciation

  • Gas and fuel costs

  • Lease payments

  • Parking fees and tolls

  • Registration costs

  • Repairs and maintenance

  • Replacement tires

Keep in mind that you can only take a tax deduction for the portion of these costs related to your business. In other words, you won’t be able to claim 100% of the expenses if you drive the same car in your personal life.

To make things easier for you, the IRS lets you calculate your vehicle deduction in two ways:

  • Actual expense method: This option requires you to track your vehicle expenses and your personal and business mileage. You can then calculate the percentage of miles you drive for business, multiply it by your total costs, and take the result as a tax deduction.

  • Simplified method: If you’d prefer not to do so much bookkeeping, this option lets you keep track of only your business mileage. Just multiply that amount by the standard IRS rate (65.5 cents in 2023) and deduct the result on your taxes.

Be aware that choosing one method will affect your ability to switch in future years. If you’re unsure which will be the most lucrative for you in the long term, consider hiring a Certified Public Accountant (CPA).

Fortunately, any fees you pay to a CPA or another tax professional generallyqualify as tax-deductible expenses. Speaking of deductions unrelated to your car, some other costs you may be able to write off include:

  • The business portion of telephone expenses

  • Insulated bags used to transport groceries

  • Self-employed health insurance premiums

Once again, if you’re ever unsure whether or not an expense is eligible for deduction on your taxes, it’s a great idea to ask your CPA. They’ll be able to help you minimize the taxes you owe without stepping on the toes of the IRS.

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How to Make Quarterly Estimated Tax Payments

Being your own boss has many perks, but it also means taking over the responsibilities your employer would usually handle. One of the most significant is paying your taxes throughout the year.

Employees have bosses who automatically withhold taxes from their paychecks and send the funds to the appropriate government agencies. Self-employed people don’t have that option, so they must make quarterly estimated tax payments.

Assuming you expect to owe more than $1,000 in taxes for the year, you should aim to pay 25% of your projected bill on or before the following dates:

  • April 15

  • June 15

  • September 15

  • January 15 (of the following year)

Fortunately, the IRS recognizes that accurately predicting your tax bill can be challenging. You’ll be safe from penalties if you pay either 100% of your previous year’s tax bill or 90% of your current year’s taxes.

How to File Taxes For Shipt

With records of your business income and tax deductions, you should have everything you need to complete your tax return. If you made the correct estimated tax payments, you should also be safe from underpayment penalties.

To avoid late filing penalties, which are even more severe, you must file your tax return by April 15. You can file an extension before then to push it to October 15. Just remember, it only changes the filing due date. It doesn’t give you extra time to pay.

Typically, it’s easiest to file returns electronically. Not only is it faster, but you’ll also get delivery confirmation. There’s nothing worse than mailing a paper copy to the IRS and waiting months only to learn they never received it.

Just as you can hire a CPA for tax advice, you can also pay them to handle your return. You’ll need to be involved to answer questions and provide information, but they’ll be able to complete the process for you, making things much easier.

Speaking of ways to make filing your Shipt taxes easier, another great idea is to use Found! It’s a business checking account designed for the self-employed and loaded with features that can streamline your tax obligations.

For example, Found can:

  • Track your income and expenses automatically

  • Calculate your net earnings and estimate your tax bill

  • Log your business miles to help you claim your vehicle expenses

  • Set aside the ideal portion of each invoice to cover estimated tax payments

Best of all, you can get started for free! Sign up for Found today to try its powerful features and see how they can help you file your Shipt taxes.

FAQ

Does Shipt Take Out Taxes?

Shipt doesn’t take out taxes from shipper or driver earnings. When you accept orders on the platform, you’re considered an independent contractor, not an employee. As a result, you’re not eligible for tax withholding.

You must make quarterly estimated tax payments throughout the year to cover your ordinary income and self-employment taxes instead.

How Much Do Shipt Shoppers Pay in Taxes?

Shipt shoppers must pay ordinary income and self-employment taxes. Ordinary income taxes use progressive tax brackets. The marginal rate increases the more money you make and ranges from 10 to 37%. Meanwhile, the self-employment tax is a flat 15.3%.

These taxes apply to Shipt shoppers’ net business earnings, which equals their gross business income minus tax-deductible expenses, like vehicle costs.

How Much Do You Have To Make To Get a 1099 From Shipt?

To get a 1099-NEC from Shipt, you must make at least $600 on the platform during the tax year. You should receive an email from Stripe with instructions for downloading your digital copy by mid-January.

Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.

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