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UBER, LYFT and the IRS

Both UBER and Lyft consider their drivers as independent subcontractors, not to be confused with W-2 based employees. But when it comes to reporting the income provided by them, the drivers are considered neither.

The IRS rule for Independent Contractors are that anyone receiving a cash/check based income directly from an employer that is above $600, needs to receive a 1099-Misc for that tax year. Traditional employers submit, to the IRS and the employees, a W-2 form for the income paid out and tax that was paid to the IRS throughout the year.

But people that work for UBER, Lyft, TaskRabbit, etc receive neither of those forms. If they get anything from them, it would be a 1099-K, a very new and sort of complicated addition to the 1099 tax form “family”, which is used mainly to report credit and debit card transactions through a merchant services.

Many drivers that had been employees for most of their lives and are now their own “bosses” and are making their own hours have no idea what kind of information they need to keep or how to even handle this 1099-K form. They have never filed a Schedule-C on their return, or ever paid self-employment tax, so this 1099-K form just adds to the confusion.

It’s also not clear as to why UBER sends out the form to everyone regardless of the amount (min. threshold is 200 transactions per month or exceed $20K) and Lyft doesn’t send one out until it reaches those minimums.

Either way, from a legal and ethical standpoint, the taxpayer needs to file ALL of their earned income throughout the year regardless of how the companies that paid them files.

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Am I Eligible for Earned Income Credit?

Over the years many people have asked us who is considered a dependent when it comes to declaring that person on their yearly tax return and what it means to be a married filing jointly or head-of-household.

Of course, right off the bat, any child that you may have is automatically considered a dependent as long as they meet a few criteria. First off the child must be under 24 years of age and have been either living with you in the same household, or you support them 100% (students living in an on-campus facility for college). Of course the amount of eligible credit will vary depending on the age of the child, amount of time that you have supported them during the year, and also if the child has some sort of disability. Another thing to keep in mind is that there is a difference between the individual tax credit and dependent care credit. The Individual Tax Credit is a standard deduction for all socials on the return, while the other is assistance by the government given to those individuals that fit the above criteria.

Another type of dependent care credit are those individuals that are NOT your child, but can be included as a dependent on your return based on a few details. A good example, which is usually the case for many clients, is an elderly individual that is either the parent of the grandparent. For these you can deduct the standard deduction only, unless there is some kind of disability associated with that individual.