How Much Do You Pay in Taxes for Instacart?

As an Instacart shopper, you’re essentially running your own small business. This means understanding your tax obligations is crucial to avoid surprises come tax season. The short answer? It varies widely. You don’t have taxes automatically withheld like a W-2 employee. Instead, you’re responsible for calculating and paying your own self-employment taxes and income taxes on your earnings.

Understanding Your Tax Landscape as an Instacart Shopper

Let’s dive deeper into the factors determining how much you’ll pay in taxes as an Instacart shopper. It’s not a straightforward percentage, but rather a calculation based on your individual circumstances and income.

Self-Employment Tax: The Foundation

The biggest tax difference between being an Instacart shopper and a traditional employee is self-employment tax. This covers both your Social Security and Medicare taxes. As an employee, these taxes are split between you and your employer. However, as a self-employed individual, you pay both portions. This amounts to 15.3% of your net self-employment income (profits after deducting business expenses).

Think of it this way: you are both the employee and the employer. You cover both the ’employee’ portion (7.65% – Social Security and Medicare) and the ’employer’ portion (7.65% – Social Security and Medicare).

Income Tax: The Variable Factor

On top of self-employment tax, you’ll also owe federal income tax and possibly state income tax, depending on where you live. Your income tax rate depends on your tax bracket, which is determined by your total taxable income (all income sources minus deductions). This means your Instacart earnings are added to any other income you have (from other jobs, investments, etc.) to calculate your total taxable income.

The more you earn across all income sources, the higher your tax bracket and the more you’ll pay in income tax. Accurately estimating your total income, claiming all eligible deductions, and managing your tax liability accordingly are crucial for financial health.

Deductions: Your Tax-Saving Weapon

The key to minimizing your tax burden as an Instacart shopper lies in claiming all eligible business expenses. These deductions reduce your taxable income, which lowers both your self-employment tax and your income tax liability. Keep meticulous records!

Common deductions for Instacart shoppers include:

• Mileage: The standard mileage rate (set by the IRS) for business use of your vehicle. This is often the biggest deduction for Instacart shoppers.
• Cell phone: The portion of your cell phone bill that is used for Instacart-related activities.
• Insulated bags: The cost of insulated bags and other equipment used for grocery delivery.
• Parking fees and tolls: Expenses incurred while shopping for and delivering orders.
• Health insurance premiums: Self-employed individuals can often deduct health insurance premiums.
• Home office deduction: If you use a portion of your home exclusively for your Instacart business.
• Fees paid to Instacart: Any fees charged by Instacart that you are not reimbursed for.

Example Calculation

Let’s illustrate with an example:

1. Gross Instacart earnings: $20,000
2. Eligible business expenses: $8,000 (mileage, phone, bags, etc.)
3. Net self-employment income: $20,000 – $8,000 = $12,000
4. Self-employment tax: $12,000 x 15.3% = $1,836
5. Income subject to income tax: This will be lower than $12,000 because you can deduct one-half of your self-employment tax and other deductions you may be eligible for. This amount is then added to all of your other income sources to find your total taxable income. This will then determine the tax bracket you fall under and what tax rate you will pay.

This is a simplified example, but it demonstrates the importance of tracking your expenses. The $8,000 in deductions significantly reduced the self-employment tax liability.

Quarterly Estimated Taxes: Stay Ahead of the Game

Because taxes aren’t withheld from your Instacart earnings, you’re typically required to pay quarterly estimated taxes to the IRS and your state (if applicable). These payments are due four times a year: April 15, June 15, September 15, and January 15 (of the following year).

Failing to pay estimated taxes can result in penalties and interest. The IRS provides Form 1040-ES for calculating estimated taxes.

Important Considerations

• Tax Software/Professional: Using tax software designed for self-employed individuals or consulting with a tax professional is highly recommended. They can help you accurately calculate your taxes, identify all eligible deductions, and ensure you’re compliant with all tax laws.
• Record Keeping: Meticulous record keeping is essential. Keep track of all your income and expenses. Use apps or spreadsheets to organize your financial data.
• Changes to Tax Law: Tax laws are subject to change. Stay informed about any changes that may affect your tax obligations. The IRS website is a valuable resource.
• State and Local Taxes: Don’t forget about state and local taxes. These vary depending on your location.

FAQs for Instacart Shoppers & Taxes

Here are some frequently asked questions to provide more clarity:

1. Do I need to file taxes if I only made a small amount of money with Instacart?

The IRS generally requires you to file a tax return if your net earnings from self-employment are $400 or more. Even if you made less, it might be beneficial to file to get a refund of any taxes you might have overpaid.

2. What is the standard mileage rate for 2024?

The standard mileage rate fluctuates, so check the IRS website for the current rate. The rate for 2024 is 67 cents per mile.

3. How do I track my mileage for Instacart?

Use a mileage tracking app (like Stride or Everlance) or a dedicated mileage log in your car. Record the date, starting and ending odometer readings, and the purpose of each trip.

4. Can I deduct the cost of car repairs?

You can only deduct the actual expenses for your car (like gas, oil changes, and repairs) if you don’t use the standard mileage rate. Most Instacart shoppers find that the standard mileage rate results in a larger deduction.

5. What is the Qualified Business Income (QBI) Deduction?

The QBI deduction allows eligible self-employed individuals to deduct up to 20% of their qualified business income. This can significantly reduce your taxable income. There are income limitations, so research if you qualify.

6. How do I pay my quarterly estimated taxes?

You can pay your quarterly estimated taxes online through the IRS website (using EFTPS – Electronic Federal Tax Payment System) or by mail.

7. What happens if I underpay my estimated taxes?

You may be assessed penalties and interest by the IRS. However, there are exceptions to the penalty, such as if you owed less than $1,000 or paid at least 90% of the tax shown on the return for the year in question.

8. Can I deduct the cost of snacks or drinks I buy while working for Instacart?

Generally, you cannot deduct the cost of personal meals or snacks. However, if you are traveling away from your tax home for business (which is unlikely for most Instacart shoppers), you may be able to deduct a portion of your meal expenses.

9. Do I need to send a 1099-NEC to Instacart?

No, Instacart sends you a 1099-NEC if you earned $600 or more during the tax year. You don’t send one to them. This form reports your earnings to the IRS.

10. What if I didn’t receive a 1099-NEC from Instacart?

Even if you didn’t receive a 1099-NEC, you’re still required to report all your income on your tax return. Instacart may not have sent one if you earned less than $600.

11. Can I deduct the cost of background checks required by Instacart?

Yes, the cost of background checks required by Instacart to work as a shopper is a deductible business expense.

12. How does being an Instacart shopper impact my eligibility for tax credits, like the Earned Income Tax Credit (EITC)?

Your self-employment income from Instacart can impact your eligibility for certain tax credits like the Earned Income Tax Credit (EITC). These credits have income requirements, so your Instacart earnings could push you above the income threshold, or conversely, increase the credit amount if your income is lower. Consult with a tax professional or use tax software to determine your eligibility for these credits.