Driving for Doordash has become a viable way for workers to earn extra income by delivering food. And a significant portion of a Doordash driver’s income will come from the tips they earn from making deliveries. This, however, raises an interesting question, do Doordash drivers pay taxes on their tips?
Yes, Doordash drivers pay taxes on all tips earned as they are considered income. It is the responsibility of the driver to report all cash tips while filing their taxes. Tips paid with credit or debit cards are included in the 1099-NEC form.
The rest of this article will focus on some of the tax issues facing Doordash drivers in regards to the tips that they earn while working for the company.
What Tips Do I Pay Taxes On With Doordash?
Per the IRS, You pay taxes on these types of tips while driving for Doordash:
- Tips paid via credit or debit card.
- These tips are automatically included in the 1099-NEC.
- Tips paid in cash.
- Non-cash (in-kind) tips
Paying taxes on cash tips is based on the honor system, but you must report all the cash tips you earn on your tax return. It is included in your gross revenue, which means you can write expenses off against the tips you receive while driving for Doordash.
Do I Have to Pay Taxes on Non-Cash Doordash Tips?
Doordash drivers on occasion will receive non-cash tips. The IRS considers this in-kind income and the driver must pay taxes on the fair market value of the non-cash item received if they did not sell it during the tax year or the amount they received when selling it.
Again, this works on the honor system, so make sure to properly appraise all non-cash tips and report it on your tax return at the end of the year. Just like with cash tips, you can deduct your expenses from them when calculating your net profit.
Do I Have to Pay Taxes on Cash Doordash Tips?
Yes, you still have to pay taxes on any cash tips you receive while driving for Doordash according to IRS Publication 531. A lot of Doordash drivers likely do not report their cash tips, but they are still liable for the taxes on all the cash tips that they receive.
Not reporting cash tips can become an issue during an audit. It’s also a good idea to report cash tips because it increases the income on your tax return, which is useful when looking to purchase a home or receive a line of credit.
To summarize, Doordash drivers must pay taxes on all tips that they receive. This includes cash tips, tips paid with credit or debit card, and non-cash tips. Reporting cash and non-cash tips is based on the honor system, so make sure to keep a good record of your cash tips so in the unlikely event you are audited you do not face stiff penalties.