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Level 1
posted Aug 30, 2023 11:44:20 AM

I'm looking to start working for Shipt or Doordash. What do I need to know about taxes?

Can I just save a specific % to pay when I file my taxes for the year? Do I need to pay quarterly (which I'm seeing mentioned as an example question in this event ?) and how does one do that? If i don't pay quarterly, what are the penalties (if there are any)?

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2 Replies
Employee Tax Expert
Aug 30, 2023 12:03:59 PM

Shipt and Doordash delivery drivers usually work as independent contractors.  This means that you are responsible for paying your own taxes.  The general rule for paying estimated taxes is the total amount you must pay is the smaller of:  

 - 90% of your total expected tax for 2023 or, 

- 100% of the total tax shown on your 2022 return.  Your 2022 tax return must cover all 12 months.

 

Yes, the IRS and most states require that you pay quarterly.  The year is divided into four payment periods.  Each period has a specific payment due date.  If you don't pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.   The general due dates are April 15, June 15, September 15 and January 15 of the next year.  

 

Typically, underpayment penalties are 5% of the underpaid amount and are capped at 25%.  Underpaid taxes also accrue interest at a rate that the IRS sets annually.

Employee Tax Expert
Aug 30, 2023 12:04:48 PM

Hello @treysoto good luck to you on your new venture!

The IRS requires the self-employed to pay as you go.  If you try to wait until the end of the year to pay as a lump sum you may incur penalties and interest.  The below links will provide more information for you on how to calculate your estimated payments and penalties/interest. 

 

Estimated Tax FAQs

When to pay estimated tax

Pay As You Go, So You Won't Owe:  A Guide to Withholding, Estimated Taxes, and Ways to Avoid the Estimated Tax Penalty