Is DoorDash Worth It After Taxes in 2023?

Driving for DoorDash can be an excellent side gig, especially if you work in a busy area. But there’s the pesky topic of taxes.

You can’t get around them and will likely owe much more than you think because DoorDash drivers are self-employed.

So, is DoorDash worth it after taxes? Keep reading to find out.

Is DoorDash Worth It After Taxes?

You must pay taxes; it’s inevitable, so you probably wonder, “Is DoorDash worth it after taxes?”

Unfortunately, it’s not a one-size-fits-all answer.

For some, it’s still well worth it after taxes, especially those who work many hours driving for DoorDash.

The more money you make, the more you put in your pocket, even after taxes. It’s also beneficial for those who track deductions and lower their tax liability, increasing their profits while working their own schedule.

For some, though, the tax liability and responsibility for expenses make it less than worth it based on how much money they need for their financial goals.

The gig economy provides many opportunities to increase your monthly income, but you might find something else to do if your hourly pay isn’t worth it after taxes.

Importance of Evaluating Post-Tax Earnings

Looking at your DoorDash earnings pre-tax is unrealistic. It makes you feel like you’re making much more money than you get to take home because the IRS will expect their cut at tax time or even before then.

It’s the law; you must report your earnings to the IRS and pay taxes. When you work for an employer, they handle your tax reporting. They also pay half your FICA (Federal Income Insurance Contributions) tax responsibility.

When you work for yourself, such as working for a food delivery service, you must pay self-employment tax, which means you pay FICA alongside your regular income tax.

If you’re in a high tax bracket, you may walk away with much less earnings than anticipated and may want to trade your time for another income-producing task.

Does DoorDash Take Out Taxes?

DoorDash does not take out taxes. You are not an employee when you drive for DoorDash. Instead, you are an independent contractor. This means paying taxes when you earn money is your responsibility.

DoorDash will report the income to the IRS, but they will not withhold the taxes owed from your paycheck. The money you receive from DoorDash via direct deposit is before taxes.

How Do Taxes Work With DoorDash?

If you earn over $600, DoorDash will send you a 1099-NEC. This means they reported your income to the IRS, and it’s your responsibility to pay taxes on it.

However, you shouldn’t wait until the end of the year to pay your DoorDash taxes.

Instead, you should pay estimated taxes quarterly to avoid penalties and interest because we are a pay-as-you-go country regarding taxes.

This is especially important if you expect to owe $1,000 or more in taxes. You may avoid unnecessary penalties and interest that would increase your tax liability.

How Much Money Can You Make With DoorDash After Taxes?

How much money you can make with DoorDash depends on several factors, including where you live, how much you work, and even the times you work.

DoorDash rates vary based on demand, and customers can tip (it’s not required), so your earnings will vary considerably.

For example, if you work hours when demand is high and customers tip well, you’ll make much more than someone who works during times of lower demand.

Of course, it also depends on how many hours you work. If this is a side hustle you do occasionally when you need extra money, you’ll make less than someone who consistently works the same hours weekly to make ends meet.

How Much Should I Set Aside for DoorDash Taxes

If you expect to earn over $600 from DoorDash, setting aside 25% to 30% of your earnings is a good idea. This ensures you’ll have enough money to cover your federal and state income tax.

If you have extra money set aside, consider it a bonus, and you can use it elsewhere, but knowing you have enough set aside can provide peace of mind at tax time.

How To Calculate Your DoorDash Taxes

To calculate your DoorDash taxes, you must determine your net income versus gross receipts.

Your gross income is the base pay from DoorDash for delivery services and customer tips. As a business owner, you have expenses you can deduct, including mileage, which decreases your tax liability.

While there isn’t a DoorDash tax calculator, you can use the IRS tax withholding calculator to estimate how much you owe for working as a DoorDash delivery worker.

Key Factors Determining if DoorDash Is Worth It After Taxes

When deciding if Doordash is worth it after taxes, you should consider these important factors.

Earnings Potential

Before starting any side hustle, consider the earnings potential and how it compares to the time investment.

DoorDash drivers in some areas make great money, making it worth their time to work for DoorDash. Others, however, find that it’s not worth it after taxes because of the lower demand in their area.

Assess the potential in your area. Does the hourly pay meet your expectations even after taxes? Consider if there was a job you could do for the same or higher pay but without the tax issues.

Expenses

As an independent contractor, you are responsible for your own expenses. Common DoorDash drivers’ expenses include gas, parking, tolls, mileage, car repairs, car payments, health insurance, and phone bills.

When you’re an independent contractor, you run your own business, so you can take tax deductions of your business expenses even if you don’t itemize deductions.

You won’t get a dollar-for-dollar deduction, so it’s essential to consider the total expenses and see how they affect your take-home pay.

Tax Deductions

As we said above, DoorDash drivers can deduct many of their usual expenses to reduce their tax liability. Your tax advisor can help you determine which expenses you can deduct to reduce how much you owe.

Self-Employment Taxes

When you work for an employer, they pay half the Social Security taxes (12.4%) and Medicare taxes (2.9%), leaving you responsible for covering 7.65% of the taxes, which they automatically deduct from your paycheck.

The entire bill is yours when you’re self-employed, such as driving for DoorDash. You must cover the full 12.4% Social Security taxes, 2.9% Medicare taxes, and your regular income tax responsibility.

This is often the largest factor that helps determine if driving for DoorDash makes sense.

Effective Hourly Wage

After considering your expenses and tax liability, it’s important to calculate your effective hourly wage. This is the amount per hour you earn after considering all hours you put in (paid and not) to run your DoorDash gig.

Tax Benefits Associated With Being a DoorDash Driver

When you work for an employer, you get few, if any, tax benefits. However, running your own gig, such as driving for DoorDash, includes several tax benefits, including the following.

Mileage

Mileage is the largest deduction for DoorDash drivers. You rack up miles on your car but can write them off as an expense.

The easiest way is to take the standard deduction of 65.6 cents per mile or actual expenses, but you’d need itemized receipts for every expense you claim.

Equipment

Any equipment you must purchase to provide excellent customer service may be tax deductible.

Common examples include hot bags or blankets to keep food warm or courier backpacks you purchase to help you carry the food to your customers.

Parking Fees and Tolls

If you pay tolls during food delivery or have to pay to park, especially in the city, you can deduct the expenses on your tax return.

Make sure to keep itemized receipts of each expense and have proof that the expenses were from DoorDash food delivery.

Phone Service and Equipment

You need a phone to run a DoorDash business, which becomes a business expense. You can also include expenses such as a phone holder for the car to help you see the GPS easier and your phone service.

However, you may only deduct a portion of your phone usage for business.

If you use your phone for business and personal use, calculate the percentage of time you use it for business versus personal and only deduct the percentage of the bill that pertains to business use.

Health Insurance Premiums

The IRS allows self-employed individuals to write off health insurance premiums in certain situations.

If you don’t have employer-sponsored health insurance, ask your tax advisor about deducting your health insurance premiums to lower your tax bill.

Inspections or Background Checks

If you must pay for any vehicle inspections or background checks, you can write off the expenses because they are a cost of doing business.

How Do You File Taxes as a DoorDash Driver

To file taxes as a DoorDash driver, you must have your 1099-NEC, which DoorDash must send by January 31.

After receiving this tax document, you must complete IRS Form Schedule C: Profit and Loss from Business on your tax return to report your earnings.

This is the form you will input your DoorDash earnings and expenses. You must break down expenses into specific categories.

You should also input any tax payments you’ve already made on your DoorDash earnings, such as estimated tax payments throughout the year.

What Happens if You Don’t Pay DoorDash Taxes?

If you don’t pay taxes on your DoorDash earnings, taxes and penalties will add up. This will increase the amount you owe and complicate filing your taxes.

FAQs

How Do Taxes Affect My DoorDash Earnings?

Anyone who makes money must pay taxes. How much taxes affect your DoorDash earnings depends on how many expenses you can write off and your income tax bracket.

You can compare your hourly pay after taxes to other opportunities, including W-2 jobs that withhold taxes for you.

How Do I Get My Tax Info From DoorDash?

DoorDash provides 1099-NEC forms via Stripe Express. If you’re owed a 1099, DoorDash emails you an invitation to create a Stripe Express account (free), and then you can access your 1099.

Does DoorDash Report to the IRS?

If you earn over $600, DoorDash reports your earnings to the IRS. You’ll know if they did because they’ll email you stating you have a 1099 to view and use to file your taxes.

Can I Deduct Expenses as a Driver To Reduce My Taxable Income?

Your tax advisor can tell you exactly which expenses you can deduct as a DoorDash driver.

However, most drivers can deduct mileage, equipment expenses, parking fees, tolls, health insurance premiums (if not employer-sponsored), and other business expenses.

Can You Write Off Car Payments for DoorDash?

If you use the standard mileage deduction the IRS allows each year, it includes the cost of auto loan interest. This is usually the easiest way for DoorDash drivers to claim vehicle expenses without complicating matters.

Is DoorDash Worth It After Gas?

Since your car is your office, gas is a major expense for DoorDash drivers, so be sure to figure it into your expenses.

The key is to minimize your expenses by narrowing your delivery services to an area that doesn’t require excessive gas usage. Staying mindful of your expenses can help make driving for DoorDash worth it.

Are There Any Strategies To Minimize My Tax Liability as a DoorDash Driver?

The best way to minimize your tax liability as a DoorDash driver is to keep track of all expenses. Most car expenses get wrapped into the mileage deduction the IRS allows.

However, other business expenses, such as parking, tolls, inspections, background checks, equipment, and other administrative costs, can reduce your tax liabilities as a business owner.

How Do Self-Employment Taxes Impact My Overall Earnings as a Driver?

Self-employment tax is a serious consideration because you are responsible for the entire amount of FICA taxes versus the half you pay when you work for an employer.

Determining how much you owe in taxes and how much it decreases your earnings can help determine if driving for DoorDash is worth it.

Is DoorDash a Viable Option for Additional Income After Considering Taxes and Expenses?

DoorDash can be worth it after taxes when you can work the times that offer the highest pay and allow you to increase your hourly pay.

Since you trade your time for money, it is important to track your expenses, pick the perfect times to work, and maximize your earnings while decreasing your expenses.

Final Thoughts 

Independent contractors often wonder, “Is DoorDash worth it after taxes?” and the answer is that it depends.

For people who work DoorDash consistently, know how to maximize their hourly rate, and keep track of their expenses, it can be worth it.

If you only work it occasionally and don’t have many expenses to write off, the tax liability may take over your earnings, making another option more viable.