Tax Deductions for Uber & Lyft Drivers in California

Tax Deductions for Uber & Lyft Drivers in California

California rideshare drivers are classified as independent contractors under Proposition 22 (passed November 2020), which means you receive a 1099-K from Uber and Lyft and are responsible for your own taxes. You owe federal income tax, California income tax, and self-employment tax (15.3%) on your net earnings. The key to reducing this burden is maximizing every legitimate deduction.

For self-employed tax strategy, see KDA's Self-Employed / 1099 Tax Services.

Vehicle Expenses — Your Largest Deduction

Your vehicle is your primary business asset as a rideshare driver. You have two options: the standard mileage rate (70 cents per mile in 2026) or actual vehicle expenses. For most rideshare drivers, the standard mileage rate is simpler and often produces a larger deduction.

You can only deduct miles driven while the Uber or Lyft app is on — from the moment you accept a ride request until you drop off the passenger. Miles driven with the app off (commuting to your starting area) are not deductible. Miles driven between rides with the app on but no passenger are deductible.

Phone, Data & App Fees

Your smartphone is essential to your rideshare business. The business-use percentage of your phone and data plan is deductible. If you use your phone 80% for rideshare driving and 20% personally, 80% of your monthly phone bill is deductible. Phone accessories used for driving (car mount, charger, dash cam) are fully deductible.

Uber and Lyft service fees (the percentage they take from each fare) are not separately deductible — your 1099-K shows gross earnings before fees, and you deduct the fees as a business expense. Keep records of the fee percentages from your driver dashboard.

California AB5 & Prop 22 Tax Impact

Proposition 22 (2020) classified rideshare drivers as independent contractors, not employees. This means you do not receive employee benefits from Uber or Lyft, but you do receive some Prop 22 benefits: a healthcare subsidy if you drive 15+ hours per week, and an earnings guarantee. The healthcare subsidy is taxable income. The earnings guarantee payments are also taxable.

As an independent contractor, you must pay both the employee and employer portions of Social Security and Medicare taxes (15.3% combined) on your net earnings. The 50% SE tax deduction (deducting half of SE tax from gross income) is available on your federal return. California does not provide an equivalent deduction.

Quarterly Estimated Taxes for Rideshare Drivers

If you expect to owe more than $1,000 in federal tax or $500 in California tax for the year, you must make quarterly estimated tax payments. Missing or underpaying estimated taxes results in penalties. For California, the due dates are April 15, June 15, September 15, and January 15.

A simple rule: set aside 25-30% of every Uber/Lyft payment for taxes. This covers federal income tax, California income tax, and self-employment tax for most drivers in the $30,000-$80,000 annual income range.

Should Rideshare Drivers Form an LLC in California?

For most rideshare drivers earning under $60,000 net, the $800 California franchise tax makes an LLC not worth it from a tax perspective. The liability protection benefit is real but limited — Uber and Lyft provide commercial insurance while the app is on. For drivers earning $80,000+ net from rideshare and other gig work combined, an LLC with S Corp election can produce meaningful SE tax savings.

See KDA's Self-Employed page for gig worker tax strategy.