How Shipt Taxes Work: Write-Offs, Tax Forms, and Hidden Costs

Gig workers shopping or driving for Shipt are subject to federal, state, and local tax regulations on their income. You’re expected to maintain accurate records of your business activities and earnings, as well as file your taxes annually. Since being contracted by Shipt counts as self-employment, you’ll also need to make quarterly estimated tax payments. 

Non-compliance, whether intentional or accidental, can lead to audits and severe penalties – including fines or even jail time.

Here, we’ll help you avoid all those legal troubles. We’ll go over Shipt tax forms, deductions, and filing procedures, as well as provide insights into managing the tax responsibilities that come with being self-employed. We’ll also show you how different jurisdictions may affect your tax obligations as a Shipt Driver or Shopper.

How do Shipt taxes work?

By law, Shipt drivers and shoppers are mandated to report every single dollar earned to the IRS. This is what makes up their taxable income – and it includes not only the payment for deliveries, but also tips, bonuses, and other incentives.

As a Shipt shopper or driver, you’re considered a self-employed independent contractor. Independent contractors pay taxes a little differently than traditional employees do, so this can take a little getting used to. 

You’ll get a 1099 instead of a W2

For one, your Shipt income won’t be reported via the W2 form used in traditional employment. Independent contractors, including Shipt drivers, rely on forms 1099-NEC and 1099-MISC instead (“NEC” stands for “non-employee compensation,” and “MISC” is short for “miscellaneous”). 

Anyone who hires a contractor and pays them at least $600 within a year is required to file a 1099-NEC and provide the contractor with a copy. 

When you work with Shipt, Shipt essentially becomes your client. Once you earn at least $600 from them, you’ll receive a 1099-NEC that details all the payouts you’ve received. These include base pay, bonuses, and customer tips. 

As such, the form can be your primary reference for confirming the gross earnings to submit in your tax filings.   

But that’s not to say lower earnings are exempted from Shipt tax filing. If you make less than $600 through Shipt, you’re still required to report your earnings to the IRS as miscellaneous income.

When does Shipt send out 1099 forms?

In partnership with Stripe, Shipt typically sends out 1099 forms to its shoppers by mid-January.

Shoppers usually receive email notifications inviting them to access their 1099 forms online.

For those who’d otherwise prefer paper copies, Shipt mails out physical 1099 forms through postal mail. However, due to inherent postal delays, receiving the paper versions might take slightly longer, potentially past January 31st.

How do I get my 1099 form?

Shipt shoppers can retrieve their 1099 forms via Stripe Express. The portal provides a seamless experience for independent contractors to manage their tax documents.

Starting in November, eligible Shipt workers can expect an email from Stripe with instructions to set up their accounts. Once you log into the system, you should be able to conveniently download your 1099 forms from the Stripe Express dashboard. They are usually available by mid-January. 

Does Shipt withhold taxes?

Unlike traditional employers, Shipt does not withhold taxes from the payments made to drivers and shoppers. Such workers are classified as independent contractors, which means they’re responsible for managing their own tax obligations. Shipt won’t deduct any form of taxes from your wages.

With these obligations resting solely on you, it’s advisable to be proactive and disciplined in your financial planning.

Estimated quarterly tax payments

Since independent contractors don’t have their taxes withheld by an employer, the IRS requires all self-employed people to pay estimated quarterly taxes — that way, you won’t end up with a big tax bill that you didn’t plan for and can’t cover at the end of the year. 

However, just because you have to pay taxes more often doesn’t mean you have to pay more money. Quarterly estimated tax payments simply divide your yearly tax burden into four payments. 

To make that a bit clearer, here’s what it looks like in practice: 

1. By April 15, pay estimated taxes on the income you earned from January 1 - March 31.
2. By June 15, pay estimated taxes on the income you earned from April 1 - May 31.
3. By September 15, pay estimated taxes on the income you earned from June 1 - August 31. 
4. By January 15, pay estimated taxes on the income you earned from September 1 - December 31 of the previous year. 

If you estimate well for each of these payments, you won’t owe any additional taxes when you file. If you overestimate, you’ll receive a refund, and if you underestimate, you’ll owe the difference. If you severely underestimate by paying less than 90% of your current year earnings or 100% of your previous year earnings, or you don’t pay at all, you’ll likely receive a penalty. 

“Shoppers can use payment and tax tracking software to track their responsibilities throughout the year,” advises Joshua Merritt, a multi-platform gig worker who’s been with Shipt for nearly four years. 

He also adds that “Shipt itself has partnered with FOUND to help shoppers accurately track responsibilities and pay on time.”

Independent contractors can also base their estimated payments on the current or previous year’s income. For example, if last year you owed $4,000 in taxes, but this year you predict you’ll owe $8,000, you can make quarterly payments of $1,000 instead of $2,000. 

Self-employment tax 

All self-employed persons are subject to self-employment tax. The rate remains at 15.3% for Shipt drivers and shoppers, with 12.4% going to Social Security and 2.9% to Medicare. 

That’s double what you’d pay if you were traditionally employed. That’s because Social Security and Medicare taxes are divided into an employer and employee responsibility in a traditional employment situation — your employer would pay their half and you would pay the other half. But when you’re self-employed, you’re both the employee and the employer, so you have to pay both halves. 

There are two saving graces though: self-employment tax is only applied to 92.35% of your income, so that will save you a bit of cash when it comes to filing season. Plus, you can deduct 50% of your self-employment tax burden from your taxable income. 

Deductible Expenses 

Deductible expenses are expenses that are directly related to your business activities. To qualify as deductible, an expense must be both ordinary (common and accepted in your trade) and necessary (appropriate and helpful for your business).

As a Shipt shopper or driver, your vehicle expenses will likely be your biggest tax write-off. There are two ways you can take advantage of that: the standard mileage deduction or actual expenses.

Standard mileage deduction vs. actual expenses

The Shipt Driver position has two primary methods for deducting vehicle expenses: 

• Standard Mileage Rate: For 2023, the IRS allows for a deduction of 65.5 cents per mile driven for business purposes. This is a universal fixed rate that covers not just fuel but also vehicle depreciation, repairs, tires, and other related costs. To use it for deductions, you must keep a detailed log of your Shipt miles, including the date, purpose, and distance of each trip. You can also use a mileage tracking app, like Stride, to help simplify things. 
• Actual Expenses: This gives you the privilege to deduct the individual costs of operating the vehicle for business purposes. You could separately include gas, oil, repairs, insurance, depreciation, and other relevant costs. As such, you’ll need detailed records and receipts of all the expenses you’ve incurred in your Shipt assignments.

Whichever you choose, consider using specialized financial software or apps to accurately track the expenses. Tools like QuickBooks Self-Employed can categorize the costs accordingly and integrate tax software for easier filing.

“Everlance is another mileage tracker that you could consider,” says Joshua. “Shipt already provides its shoppers and drivers with a discount on the premium version.”

Catherine Meyers, who has been working with Shipt for two years, suggests confirming the figures directly with Shipt. “Shipt keeps a record of your active miles and this can be seen on the form they send you. Additionally, you can track each week’s distance through the pay statements issued by Shipt.”

State and local tax considerations 

Each state and locality has its unique laws and rates, which impact a driver's tax obligations.

In states like California, Shipt drivers face a progressive tax system where higher earnings could potentially push the tax rates up to 13.3%. This is quite the opposite of Texas and Florida, both of which do not impose state income tax.

Some states even offer deductions or credits that can reduce tax liabilities. For example, Oregon allows a special deduction for federal taxes paid, thereby decreasing the state taxable income.

Local taxes can compound the issue, as some cities or counties currently impose their own taxes on selected business activities. A Shipt driver in Philadelphia, for example, might need to pay the city's Business Income and Receipts Tax (BIRT), which has its own set of rates and rules. 

Things may get even more complicated for Shipt drivers who operate across state or city lines. Earning income in multiple jurisdictions often means filing tax returns in each. That means your taxable earnings might be apportioned based on where the work was performed. For example, a driver living in New Jersey but occasionally making deliveries in New York City may need to file tax returns in both states. 

To avoid double taxation in such scenarios, many states now offer credits for taxes paid elsewhere. That should help you in reducing your overall tax liability.

If you’re ever unsure how to file your taxes, it’s generally a good idea to consult a professional tax advisor for expert guidance.  

How to file your taxes for Shipt income

When it comes time to file your taxes, here are the steps you can take. 

Gather your documents

Shipt shoppers and drivers should have the following key documents at the time of filing their taxes:

• Your 1099-NEC form from Shipt, which details your earnings. If you work multiple gig jobs, collect 1099 forms from each. 
• Detailed records of all business-related expenses. This includes vehicle costs (mileage, fuel, maintenance), mobile phone bills, and any supplies or equipment used for Shipt deliveries.
• Personal identification information, such as your Social Security Number (SSN), Employer Identification Number (EIN), or Individual Taxpayer Identification Number (ITIN).
• The previous year’s tax return for reference purposes.

Tax filing procedure

If you want to do things the old-school way, you can go to the IRS website, obtain Form 1040, also known as Schedule C, and fill it out by hand.

But the US tax code is extremely complex, so almost no one does this. Instead, it’s advisable to either hire an accountant to do your taxes for you or use popular tax software, like TurboTax or FreeTaxUSA. 

“FreeTaxUSA IS 100% free, and the only fee is for filing online,” says Catherine.

How much do Shipt shoppers and drivers pay in taxes?

Let’s now put everything into perspective with the calculation of a hypothetical worker’s Shipt taxes. Remember, though, that this is just a simplified example based on completely hypothetical numbers. Your actual tax liabilities will vary based on factors like total earnings, business expenses, the number of miles driven, income tax bracket, applicable deductions and credits, plus state tax rates. 

For this specific case, imagine a Shipt Shopper or Driver who earns $30,000 a year from their deliveries. 

If they drive 25,000 miles worth of errands in 2023, the current IRS mileage rate of 65.5 cents per mile qualifies them for a deduction of $16,375 for vehicle expenses (25,000 miles * $0.655). 

Without any other additional business cost, their taxable income from Shipt would therefore be $13,625 ($30,000 - $16,375).

Note that everyone has the option of taking the standard deduction of $13,850 instead of using itemized deductions, like mileage. However, since the itemized deductions here work out to more than the standard deduction, we’ll use those. If they came out to less than the standard deduction, we’d take the standard deduction instead.

The accompanying self-employment tax is expected to take up 15.3% of the net earnings. However, as we explained, self-employment tax only applies to 92.35% of that income. 92.35% of $13,625 is $12,582.69, bringing the self-employment tax bill to $1,925.15 ($12,582.69 * 0.153). 

We can now deduct half that amount ($962.56) from our taxable income, bringing it to $12,662.44.

Income tax charges, on the other hand, depend on the shopper's tax bracket and filing status. The IRS uses marginal tax rates, and they’re pretty complex. For now,  we can simplify them by assuming that, at this income level, the first $11,000 of your income is taxed at 10%, and then your income from $11,001 to $44,725 is taxed at 12%. That gives us this calculation:

(($11,000 * 0.10) + (($12,662.44-$11,000)*0.12)) = $1,299.49

So, your federal income tax would come out to $1,415. Then, just add self-employment tax to that to get your full federal tax burden:

$1,299.49 + $1,925.15 = $3,224.64

If the Shopper resides in a state with a 5% income tax rate, the state tax on their Shipt income would be $633.12 ($12,662.44 * 0.05).

As such, the total tax liability for our hypothetical Shipt shopper – considering self-employment tax, federal income tax, and state tax – would be around $3,857.76.

How does that compare to traditional employment?

If we used all the same figures as above but assumed traditional employment instead of self-employment and taking the standard deduction instead, the tax burden would come out to:

(($30,000-$13,850) * 0.9235)*0.0765)+(($11,000*0.10)+(($30,000-$13,850-$11,000)*(0.12)) = $2,858.96

So, as a self-employed person in this situation, you could expect to pay approximately $366 or 12% more in taxes.

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