A couple weeks ago, Iowa City entered the 21st century. The City Council, after much hemming and hawing, decided to approve Uber within city limits. In this booming college town known for some of the hardest partiers in the country, ridesharing services have been sorely missed. College students have needed to pay for expensive cabs, take circuitous buses, or stumble home. We’ve really missed the Uber option.
I’ve been waiting for this moment for years. I’ve been fantasizing about it. I would roll up in my Bentley, glide the window down, and chuck a half-smoked cigarette onto the curb. I’d peer over my Secret Service-style aviators and say, “Someone order an Uber?” Then, the fantasy would evanesce — including the Bentley, the smoking, and the aviators.
Now that Uber is here, I can’t help but think: Between taxes, fees, depreciation, and other driving costs, can you actually make any money driving for Uber?
In many ways, Uber is the perfect side income. It subsidizes the ownership and use of a car, pays for hours otherwise uncovered by other opportunities to make money, and is a fun, social method to make money.
Despite the many positives, Uber isn’t some sort of utopia. Passengers smoke cigarettes, vape, leave trash, and can be altogether rude — and that was just my first four rides. People can miss your phone calls, texts, and app notifications of your arrival, too — or cancel the request after a couple minutes of driving towards them.
This morning I had an extra 40 minutes and decided to “go online.” Within the Uber Partner app, I waited about 45 seconds and was called to pick up someone. That was quick, I thought. About 25 minutes later, after the Uber mafia had taken their cut (25% of every fare), I walked away with $9.17.
The couple I picked up were out-of-towners whose car had broken down in the city. They needed a lift to a dealership for auto repair. Being there to help them seemed important — a win-win for us both.
Searching for the real Uber income statistics
Plenty of news articles have noted Uber drivers’ incomes and attempted to get a net income, but it’s challenging to see how they do their math. I figured I’d do some math right here, and see what I found for both of our sakes.
Let’s estimate $1,000 for 2016 earnings. I haven’t made that much — yet — but intend to keep driving when fares surge due to increased demand. Maybe I’ll get there?
At Uber, you’re considered an independent contractor. You are your own business in many ways. Many of the company’s risks and costs are displaced onto their drivers. You have to pay for medical and car insurance, and if you get in an accident, it’s on you.
Thus, the $1000 earned is called self-employment income. The IRS considers self-employment income for a couple special taxes: Social Security and Medicare. When Uber pays you — or other drivers — it doesn’t take out any money for income taxes. Thus, you have to give some of the money back to the government. Importantly, these taxes are only owed on earnings over $400.
Calculate your self-employment taxes
Currently, the self-employment tax rate is 15.3%. But like anything the IRS publishes, it’s complicated. Only 92.35% of income is considered taxable. Why? Again, call up the IRS — I’ve got no clue. Here’s what the math looks so far with the taxable income consideration and self-employment tax:
$1,000 total Uber earnings
x.9235 taxable income conversion
$923.5 total taxable income
x.1530 self-employment tax
$141.30 total taxes owed
In review, by calculating this initial taxation, I’m left with $1,000 minus $141.30. After all these calculations I’d be left with $858.70. Here’s where people tend to stop and say, “Hey, I think driving for Uber is worth it!”
Calculate your tax deductions
But wait a moment, okay? These initial calculation fail to account for business expenses and tax deductions. Tax deductions are usually expenses incurred in the process of making additional income. Over the last few weeks, I’ve calculated a few deductions because of the business.
Here are some quick examples of things I’ll be watching out for:
- Tax deductible portion of self-employment taxes (50% of taxed self-employment income)
- Mileage deduction ($0.54 per mile driven for business)
- Parking (e.g., $5 thus far)
Meticulous drivers out there should try to keep track of all mileage driven for Uber. Pay close attention to every mile, as the IRS provides a $0.54 standard tax deduction per mile. What I’ve noticed is about a 40% per dollar to mile calculation on average. In Iowa City, which might differ compared to your local city, I’m out in the boonies for a long drive and then back into the city area for short trips. For the sake of this estimate, I’ll say $1,000 in income equates to 400 miles driven.
Here are my tax deductions:
400 miles driven
x.54 per mile deduction
$216 tax deduction for standard mileage driven
+$70.65 deduction for self-employment tax (50% of taxes)
$286.65 total tax deductions
Importantly, tax deductions are not money put directly in your pocket. They essentially are a method of reducing your tax burden on annual income. For instance, if I made $25,000 in combined income in 2016 — some of it receiving income taxes and others from self-employment — that would put me in the 15% tax bracket. With $286.65 in deductions, the IRS says I made only made $24,713.35 in adjusted gross income.
Now, here’s why I hate calculating taxes by hand…
$25,000 combined annual income
x.15 tax bracket
$3,750 in taxes
$25,000 combined annual income
-$286.65 total tax deductions
x.15 tax bracket
$3,707 in taxes
Hold on, let me take a breather — this is a lot of math. Phew! Subtract $3,707 from $3,750, and you get $43 from the tax deductions. $43 that the federal government is essentially giving back to you because you drove for Uber.
Calculate your driving costs
You might’ve thought we were done. You might’ve thought, “Okay, now we can add and subtract — bada bing bada boom!”
You’d be wrong.
Before we can calculate a realistic number earned, we need to account for depreciation, registration, maintenance, and other fees associated with operating and owning a car. Driving all those miles, while accounted for in the IRS mileage deduction, still hits your wallet. Simply put, you still incur costs to driving that vehicle all around town.
The best driving statistics come from AAA. Every year they publish their driving cost statistics, while accounting for gasoline, insurance, and other variable rates from year to year.
Based on a small sedan (that’s what I drive), driven about 15,000 miles per year, equates to 43.9 cents per mile in costs. Driving for school, work, or even Uber on the side costs the same amount: 43.9 cents per mile.
Here’s an estimate of driving costs:
x.40 rough estimate of dollars to miles
400 miles driven
x.439 cents per mile
$175.60 total driving cost based on AAA statistics
The final, Uber calculation and results
Starting from $1,000 in earnings, I lost some to self-employment taxes (-$141.30). I was fortunately able to reclaim some money through tax deductions ($43). But before I could make the final judgment, I calculated the driving costs (-$175.60).
In total, after all is said and done, $1,000 becomes $683.10 in take-home pay. And by “take-home,” I mean no one can touch it at this point. That’s after everything is paid off.
Throughout this article, I’ve made a number of calculations. With more time and statistics, I’d be able to report more accurate estimates. For now, the statistic equals 70% of what you see is what you get.
Every fare, surge, and ride time. Every cool conversation. and every drunk college student — you’ll make about 70 cents on every dollar earned.
I forgot one remaining variable: time. When you’re staring at 70 cents per dollar, you might wonder if Uber driving is worth your time. While an important question, this is what I fall back on: the money and market for ridesharing didn’t exist prior to Uber’s arrival. There were fewer ways to monetize free/down time. Now, every few moment or time off can be an opportunity to earn.
There are many caveats and exceptions, it’s hard to clarify them all in this article. If you’ve driven for Uber, or have experience as a passenger, or are thinking about driving, let me know in the comments below! I’d love to include any additional insight you have into this article, as well.