If you have a side gig delivering food or another service, that can feel like additional work. But those businesses also come with tax obligations — and risks. In the case of services like DoorDash, it’s easy to overlook the associated taxes. That might not seem like a big deal; after all, you’re probably making less than minimum wage as a delivery driver.
However, ignoring taxes as an independent contractor can result in unexpected penalties. The tips below will help you understand your obligations as an independent contractor and what happens if you don’t pay DoorDash taxes.
What are the taxes you need to pay as a DoorDash delivery driver?
There are several different types of taxes that you must pay if you work as a delivery driver for DoorDash. The most common are:
Federal taxes: The IRS applies a Social Security and Medicare tax to all wage earners. It’s a regressive tax that doesn’t depend on income. Drivers will pay a Social Security tax of 12.4% of their wage and Medicare tax of 2.9%. Federal taxes are calculated based on your income — and whether you’re an employee or contractor. As an employee, you’ll pay taxes on your gross earnings. As an independent contractor, you’ll pay taxes on your net profit.
State taxes: Every state charges a different rate of state taxes. In most states, you’ll pay the same rate as an employee. If you’re an independent contractor, you’ll pay state taxes based on your net profit.
What Happens if You Don’t Pay DoorDash Taxes?
If you fail to pay your taxes as a delivery driver, there are serious consequences. If you don’t pay federal taxes, the government can garnish your wages, seize your assets and put a lien on your property. There are also serious consequences if you don’t pay state taxes. Tax authorities can revoke your license and put a hold on your assets and property. If you continue to evade taxes, you can face fines, jail time and a criminal record.
Why is it important to pay DoorDash taxes?
If you work as an employee, your employer covers your portion of the tax. But if you’re an independent contractor, you’re responsible for paying the full amount. If you’re making $200 per week, you might think it’s not worth the extra effort to collect taxes on your earnings. However, it’s important to keep in mind that your tax obligations are higher. Your taxes can range from $40 to $100 each week. If you fail to pay taxes on your earnings, you’ll eventually face penalties and interest.
Penalties for not paying DoorDash taxes
As an independent contractor, the government expects you to pay your own taxes. If you don’t pay federal and state taxes, you’ll face fines and interest on your tax debt. The penalties for not paying taxes as an employee are much less severe. If you don’t pay your taxes as a delivery driver for DoorDash, you’ll receive a notice from the state and/or federal government. If you ignore the notice, you could face fines and interest. If you receive a notice, it’s important to address it right away. If you don’t, the government can take more drastic action.
Consequences of tax evasion
If you continue to evade taxes after receiving a notice, tax authorities can take action. They can garnish your wages and/or freeze your assets. If the IRS considers you to be a “bad taxpayer,” they can revoke your passport and freeze your bank account. If you owe $50,000 or more, you could face time in prison.
As an employee, you have a safety net. If your employer fails to pay your taxes, you can file a claim. As an independent contractor, you’re responsible for everything — from your tax obligations to the safety of your customers. If a customer files a complaint, DoorDash will ask you to let them deal with the issue. If you have tax obligations, it’s important to let your tax office know. They can help you navigate the system and avoid penalties.