A friend is an Instacart delivery driver part time. I assume he would be considered self employed. He said the company pays him for car mileage. If so, is it true he can’t claim mileage as an expense when he files taxes? Or can he claim mileage if Instagram pays him less than the law allows?
Hi Ken288,
“I assume he would be considered self employed. He said the company pays him for car mileage. If so, is it true he can’t claim mileage.”
This is correct. He can’t deduct mileage because Instacart is deducting it. As far as I know two different taxpayers can’t claim the same deduction in general. I would recommend he still check with his tax preparer since I don’t work with many clients that have this kind of activity.
Regards,
TaxAccountant
1 Like
I assume he would be considered self employed. He said the company pays him for car mileage. If so, is it true he can’t claim mileage."
This is correct. He can’t deduct mileage because Instacart is deducting it. As far as I know two different taxpayers can’t claim the same deduction in general. I would recommend he still check with his tax preparer since I don’t work with many clients that have this kind of activity.
This answer is wrong. If he is considered self-employed, the company will report its gross payments to hime via 1099-NEC. This amount will include all money given to him for whatever reason without any breakout of intended purpose.
It is his responsibility to track allowable expenses and deduct them against the reported income on Schedule C.
The answer given by TaxAccountant would be somewhat correct if the taxpayer was an employee. In that case, this would be reimbursement of an employee expense under an accountable plan. Any excess expense beyond the reimbursed amount would be a miscellaneous itemized deduction. Unfortunately, these deductions are not allowed for federal purposes under JCTA until it expires in 2026. (I mention this because some states still allow these deductions.)
Ira
8 Likes
Thank you for the responses.
Ira - in one of his pay statements, it says Batch pay includes delivery distance ($0.60/mi). So although the 1099 may not have a breakdown, doesn’t this statement mean he can’t deduct mileage as an expense?
Ira - in one of his pay statements, it says Batch pay includes delivery distance ($0.60/mi). So although the 1099 may not have a breakdown, doesn’t this statement mean he can’t deduct mileage as an expense?
Not Ira, but I would say that the paycheck notation is consistent with what Ira said:
If he is considered self-employed, the company will report its gross payments to hime via 1099-NEC. This amount will include all money given to him for whatever reason without any breakout of intended purpose.
It is his responsibility to track allowable expenses and deduct them against the reported income on Schedule C.
It appears that the gross payment (“Batch pay”) in the paycheck includes mileage reimbursement at $0.60/mile. That means that his 1099-NEC will include those payments for mileage as part of his compensation, since it was included in his paycheck. As long he has tracked the business specific miles for his car, on his Federal return, he is allowed to deduct the 2021 mileage expense at $0.56/mile as a business expense on his Schedule C. If he doesn’t do so, he will be paying taxes on the full mileage reimbursement. Note that he will have to pay taxes on the excess $0.04/mile that he was reimbursed over the allowable Federal limit.
AJ
1 Like
Hi Ira and aj485,
Where are you seeing support that an independent contractor can deduct reimbursed expenses? I’m only seeing that an independent contractor can deduct unreimbursed expenses.
Thank you,
TaxAccountant
Where are you seeing support that an independent contractor can deduct reimbursed expenses? I’m only seeing that an independent contractor can deduct unreimbursed expenses.
Where are you seeing that independent contractors can only deduct unreimbursed expenses? The only instances that I see talking about unreimbursed expenses for employees, not independent contractors. Here’s an example from IRS Pub 463 https://www.irs.gov/pub/irs-pdf/p463.pdf which specifically talks about employees. Further along in the pub, it states that you can use the standard mileage rate whether or not you are reimbursed.
The cost of using your car as an employee, whether measured using actual expenses or the standard mileage rate, will no longer be allowed to be claimed as an unreimbursed employee travel expense as a miscellaneous itemized deduction due to the suspension of miscellaneous itemized deductions that are subject to the 2% floor under section 67(a). The suspension applies to tax years beginning after December 2017 and before January 2026. Deductions for expenses that are deductible in determining adjusted gross income are not suspended.
.
.
.
You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate.
I guess I’m confused as to why you think that allowable mileage expenses (such as the miles from the store/restaurant to the customer’s house, and the miles between pick-ups at stores/restaurants, but not the commuting miles from the driver’s house to the store/restaurant, for instance), wouldn’t be deductible? Schedule C allows mileage deductions to figure profit for businesses.
AJ
Two replies here.
aj is correct that the excess $.04/mile is taxable income if the IRS standard mileage rate of $.56 is used. However, one can use actual expenses which may be more or less than the standard mileage rate. This is more complicated and requires meticulous record keeping. As an aside, the reimbursed mileage may be signifcantly short of the actual business mileage. Using Uber as an example, Uber only reimburses miles with a passenger, not necessarily the miles to get to the passenger (or home at the end of work).
As to (un-)reimbursed business expenses for an independent contractor - if the reimbursed expenses weren’t deductible, he would be paying tax on the reimbursement. The key difference between an employee and an IC is that only the wages of an employee are taxable. The reimbursed expenses are not taxable. For an IC, everything is taxable. If he couldn’t deduct the expenses, he would be paying tax on phantom income.
An example to illustrate,
Assume Company ABC has $100K of gross income, pays employee $50K salary and reimburses $1K of auto expense. Ignoring payroll taxes and all other expenses, ABC reports $50K on W-2 for employee, pays tax on $49K of net earnings, and employee pays income tax on $50K of salary.
Assume same facts except using an IC. ABC has no auto expenes on its books, but it deducts $51K as IC payments. So it still pays tax on $49K of net earnings. ABC reports $51K of IC payments on 1099-MISC and IC pays income tax on $51K less any expenses related to the work - in this case the $1K of auto expense. So the IC ends up paying tax on $50K of income.
Ira
1 Like
“The cost of using your car as an employee.”
There are different rules for ICs and employees. Employees usually get W-2s. ICs usually report on Sch. C as self-employment. We are talking about an IC here.
Ira,
Thank you for this. I must have accidentally misread previous posts. Your latest response makes sense.
TaxAccountant
There are different rules for ICs and employees. Employees usually get W-2s. ICs usually report on Sch. C as self-employment. We are talking about an IC here.
I understand that. That’s why I said The only instances that I see talking about unreimbursed expenses for employees, not independent contractors. and then gave the example you quoted for an employee. I am still wondering where you saw that independent contractors could only deduct unreimbursed expenses.
AJ
1 Like
“I am still wondering where you saw that independent contractors could only deduct unreimbursed expenses.”
I have almost no experience with reimbursements and accidentally misread previous posts while trying to work on a Q4 projection that a client decided to send me today rather than before the Q4 due date on Tuesday. Fortunately they don’t need to pay anything right now.
TaxAccountant