Whatever your experience with Instacart, you should know what to expect when it comes to taxes.
Taxes are required on the money you earn as a shopper, just like any other type of income.
As an Instacart shopper, you're an independent contractor. Working for yourself has its own benefits, but it also means tax time can be complicated.
That's why we have created a personalized tax guide, complete with our best tax tips. Learn everything you need to know about preparing for tax season as an Instacart shopper.
Do You Have to Pay Taxes on Instacart?
Yes - in the U.S., everyone who makes income pays taxes. Instacart shoppers are required to file a tax return and pay taxes if they make over $400 in a year. This includes self-employment taxes and income taxes.
As an independent contractor, you must pay taxes on your Instacart earnings. For Instacart to send you a 1099, you need to earn at least $600 in a calendar year.
Even if you made less than $600 with Instacart, you must report and pay taxes on your income. Instacart is, however, not required to provide a 1099 form. It is recommended that you consult with an accountant to make sure you are reporting the correct amount of income.
Does shopping for Instacart count as self-employed?
The majority of shoppers on Instacart are independent contractors or self-employed. This means that your taxes are the same as those of a sole proprietor. However, there are a few exceptions.
Several stores use their own employees to pick up orders or deliver them to customers who choose pickup over delivery. This means you're an employee of that company, not Instacart.
Additionally, employee shoppers are hired by Instacart to work exclusively in-store. When you take a job in this field, you are an employee, not an independent contractor.
States such as California are fighting to determine whether gig workers are employees rather than independent contractors. Judges have, in some cases, ruled that gig workers are employees only to be overruled, so the workers are now classified as contractors again. Check with your state's rules regarding how shopper workers are classified.
The focus of this post is on the self-employment tax rules for independent contractors. For employees, filing their income tax returns is a lot easier because they don't have to pay estimated taxes and are generally not allowed to deduct any expenses.
What taxes do Instacart shoppers have to pay?
Instacart delivery drivers are required to pay self-employment taxes, unlike in-store shoppers. Freelancers and independent contractors pay this tax, commonly referred to as FICA tax.
FICA taxes are also due by W-2 employees, at a rate of 7.65%. The employer matches what the employee pays.
As an Instacart driver, however, you're self-employed, so you're responsible for both the employee and employer portions of taxes. In other words, you'll have to pay that 7.65% twice, for a total of 15.3%.
That's on top of your federal and state income taxes.
Do You Have To Claim Instacart Tips On Taxes?
Tips are an important part of Instacart shoppers' earnings. In case you're wondering if tips are taxable, the answer is yes.
On the Instacart platform, customers can tip you in-app or with cash. Tip income is taxable. You must report all tips, including cash tips while working for Instacart.
Helpful Resource: Are tips taxable? Guide
How much to set aside for Instacart taxes
Tax professionals recommend putting aside 30% of the income Instacart shoppers make for delivery services. This will make sure that you are covered come tax season.
It may seem like a small tax but 15.3% self-employment tax can add up to a great deal. New shoppers are often surprised to learn how much they owe the IRS.
You can also make sure you set aside enough money by using a self-employment tax rate calculator.
Remember: There are ways to lower your taxes by taking write-offs. You can read more about that below.
Does Instacart Take out Taxes?
Instacart shoppers are contractors, so the company will not deduct taxes from your paycheck. You can save 25 to 30% of every payment and put it in a different account to make saving for taxes easier.
Tax withholding depends on whether you are classified as an employee or an independent contractor. To determine this, every company needs to examine the relationship between the worker and the company. In essence, whether a worker is an employee or an independent contractor depends on the law.
In accordance with the IRS, an individual is considered an independent contractor if the payer is only able to control or direct the result of the work, not how it will be done.
Regardless of whether a worker has been classified as an independent contractor, employers must still report the payment to the IRS, if it is $600 or more. This income will be reported on IRS Form 1099-Misc.
The classification of workers has been controversial over the past few years.
The shoppers on Instacart are independent contractors and are responsible for their own taxes. Self-employed individuals pay taxes on their net income, which is their total income minus any business tax deductions.
In other words, you have to pay self-employment taxes including social security and medicare taxes.
Helpful Resource: Schedule SE - Self Employment Tax Guide
The in-store shoppers on the platform are Instacart employees. Thus, the company is responsible for payroll taxes. Employees are charged with withholding and paying taxes.
Instacart withholds the following amounts from an In-Store shopper's wages:
- State income taxes
- Federal income taxes
- Social security
- Medicare taxes
What tax forms do Instacart shoppers get?
Independent contractors who earn more than $600 a year will get an Instacart 1099-NEC. The 1099-NEC is a new name for the 1099-MISC. Instacart must deliver your 1099 to the IRS by January 31st each year.
If you are employed by Instacart, a W-2 will be sent by January 31st.
You will be asked to provide a W-9 or W-4 when you join Instacart. Instacart uses W-9s for independent contractor positions to verify your legal name, address, and tax identification number. The W-4 forms are for employees and also help you set up tax withholding. Independent contractors are not subject to tax withholding.
How do you get your 1099-NEC from Instacart?
Payable is used by Instacart to send tax forms. Contact Shopper Support if you don't receive your Instacart 1099.
If you earned less than $600 during the previous year, you may not get a 1099.
Can you file your Instacart taxes if you haven’t received your 1099?
Yes - your 1099 merely tells you and the IRS how much you made last year. You don't need a 1099 if you already know how much you made. Just enter the amount that would appear on your 1099.
Tax software may ask you to enter your 1099s. You are just doing this so it can do the calculations for you. It doesn't matter whether you enter your income as a 1099 or not. This is because your tax return only shows a single line for your business income. Using your tax software, you only have to provide information separately to make sure you don't forget anything.
How to file your Instacart taxes
It's time to file your taxes!
Schedule C, Schedule SE, and 1040 are the tax forms you'll need to complete.
Schedule C - For Business Income and Expenses
On this form, independent contractors calculate their net earnings - the amount they are actually taxed on. Fill in your Instacart earnings and write-offs here.
Additionally, if you do other gigs on the side, you will have to fill out separate Schedule Cs.
Helpful Resource: What is a Schedule C?
Schedule SE - For Self-Employment Tax
Self-employment tax is calculated by using Schedule SE.
As with Schedule C, you will need a separate one for each service you have been contracted with.
Form 1040 - For Individual Income Tax
Schedule C and Schedule SE should be attached to Form 1040 once they are completed.
The form is used by all taxpayers to file their tax returns. Only one form is required.
You can hire an accountant or tax preparer to file your taxes for you if you prefer not to handle the hassle yourself.
When to Pay Instacart Taxes
Unlike a W-2 employee, you might need to pay your Instacart taxes in four separate installments throughout the year. This is due to quarterly estimated taxes.
Helpful Resource: Estimated Tax Guide
In general, people who expect to owe at least $1,000 in taxes should make these quarterly tax payments. Due dates are as follows:
- Q1 - April 15
- Q2 - June 15
- Q3 - September 15
- Q4 - January 15
If you are required to pay quarterly, not meeting these deadlines will result in fees and penalties. If you do wind up paying more than you need to, though, you’ll get your money back.
Taxes can be tricky, especially if you're new to the gig economy. Independent contractors and gig workers often make tax mistakes and then get penalized for them. Consult an accountant or tax professional for help.
What tax deductions can you take for Instacart?
Even though contractors are responsible for all of their taxes, they do have a few unique advantages.
As an independent contractor, you can deduct certain expenses from your taxable income.
Here are some deductions you should know about as an Instacart shopper.
Top Instacart Tax Deductions
Any mileage you drive for work can be deducted. This includes:
- Picking up orders
- When delivering orders
- in between deliveries
- to the gas station when working
- To shops for car maintenance
Note: Your mileage from and to home at the beginning and end of each workday is not deductible.
How do I deduct my mileage?
Mileage can be deducted in two ways. One option may save you more money than the other, depending on your vehicle:
Standard Milage Deduction: In 2022, you can deduct 58.5 cents per mile as part of the standard IRS mileage deduction. In 2021, the rate was 56 cents per mile. TGas, depreciation, oil changes, and repairs are all covered by this rate. This is typically the best option for most Instacart shoppers.
The Actual Expenses Method: Using this method, you can add up and deduct each of your business-related vehicle expenses separately. People who recently bought a car or are paying monthly loan payments for a new car may find it more cost-effective to use this option.
Is this deduction still valid even though part of my Instacart payment is based on estimated mileage?
Absolutely! Despite the fact that Instacart calculates how much payment to give each batch based on estimated miles, this isn't a mileage reimbursement, so you can still deduct your work-related mileage. You just need to make sure you have the documentation to support your deduction.
Phone and Phone Bills
For your delivery job, you can deduct anything that is "ordinary and necessary". This includes:
- Phone bills
- Phone accessories, like car holders, chargers, or clips
Cell phone expenses can be included on Schedule C, Part 5. Once you have added up all your other expenses, write the total on line 27a.
Only a percentage of business expenses can be deducted. Thus, if you use your cell phone for work 50% of the time, and for personal reasons 50% of the time, you can only deduct 50% of your phone expenses. It's important to estimate the percentage of accurately since the IRS is very strict when it comes to technology deductions.
Everything related to your delivery job that is "ordinary and necessary" can be deducted. This includes any insulated bags or blankets you buy for keeping food orders warm.
The IRS is strict about using business supplies for personal use, so if you ever need a hot bag outside of work, be sure to use a separate one.
Working in the city sometimes means paying for parking. You can deduct that.
However, traffic violations, parking tickets, and speeding tickets are not deductible since they are not directly related to work.
Preparing for Instacart Taxes
When you pay your Instacart taxes, it's helpful to know what to expect. With gig economy companies, you're largely on your own.
It can be confusing to deal with Instacart taxes, especially if you have other self-employment income.
As a result, you might want to get tax advice from a certified public accountant (CPA).
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