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.
If you’re interested in becoming an Uber Partner, use my referral to gain an extra $100 to start. And if you’re an Uber passenger or want to be one, use this referral link to gain a fe ride!
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.
Great breakdown. So did you come to a conclusion on how much YOU plan to drive for Uber? Frankly, I’m too chicken to do it. 🙂
Sounds like a good way to make a little cash on the side. You can fit it into your schedule at anytime and are not tied down to it and that is a big benefit. You are also in some cases helping college students without cars get home from the grocery stores with all the groceries etc. and that is a nice way to help people. Let us know how it goes for you in the long run.
Ashley Chason says
This is great, I think a lot of people do not take all of these factors into account for any self-employment/1099 position. I apologize if I missed it, but it looked like the only taxes taken into account were the self-employment taxes, and not the usual federal, state, and/or local taxes? As a 1099 employee myself I am all too familiar with those being owed, too. I have to set a percentage of each paycheck aside so I can make sure to have enough to pay the IRS at tax time. Maybe these weren’t factored in for this article’s purposes, but I just don’t want anyone to think you only have to pay self-employment taxes on 1099 earnings. Great blog, I thoroughly enjoy reading!
Lee Kovacsevics says
Don’t do it. Uber is the only money maker in this. The wear and tear on your vehicle, not worth it. Insurance, most insurance companies will NOT cover you for this, so you will need to lie or pay the exorbitant cost for commercial insurance which many will not give you unless you have a hack license. Uber only requires you show proof of minimum insurance, if you have an accident and a passenger is injured any costs insurance doesn’t cover (and if you didn’t bother telling them you were using your car as a business you have lied by omission and are not covered at all) you and you alone will have to pay. You must pay into social security, worker’s compensation, etc. yourself, Uber does nothing. Uber sets the rates and those can change anytime, your income depends upon a percentage of the rate. Your income can frequently be below your own state]s minimum wage. Uber loves flooding the market with drivers, they and they alone make more money. Last year, Uber dropped the fare 55% when all the students went home for the summer and kept it low when they returned to gain back their business. Uber sounds like a great idea, the realities are contract workers who have unreliable, frequently low incomes, but bear all of the business costs and legal consequences. Oh, and women…lots, and lots of sexual harassment and worse from passengers. Uber tolerates no complaints or even suggestions from their contractors. Uber keeps its dirty secrets, secret.
Millennial Moola says
I feel like Lyft is a far better financial proposition if there’s enough traffic in your area to justify driving for them. We had a guy pick us up in an old (one of the car doors wasn’t original) but clean toyota. Uber never would have allowed him to drive for them because of their stringent requirements. The cost of the car you are driving is a big deal. Sure you could make $20-$30 an hour, but if your car is $20,000 and you have marginal credit and pay $500 a month in car payments, you probably would be better off at McDonald’s