Does Instacart Take Out Taxes in 2024? The Complete Guide

As an Instacart shopper myself for over 2 years, I‘ve learned the hard way that taxes aren‘t withheld from earnings like a typical paycheck. The responsibility falls on us as independent contractors to understand tax obligations and set aside money to avoid a stressful tax season. This guide breaks down everything Instacart shoppers need to know about paying taxes in 2024.

You Owe Taxes as a Contractor, Not an Employee

The IRS classifies Instacart shoppers as self-employed. We control when and how much we work. Instacart issues us a 1099-NEC detailing earnings. As contractors, no taxes are withheld from our income by Instacart. We must budget and pay taxes ourselves.

As a rule of thumb, aim to set aside 25-30% of earnings for federal income, state income, and self-employment taxes.

Not paying quarterly Estimated Tax Payments to the IRS during the year can lead to big tax bill in April and penalties for underpayment.

Self-Employment Taxes – Understanding What They Are

We pay self-employment tax as contractors, which covers Social Security and Medicare programs. This self-employment tax rate is 15.3% on your net earnings, which is double what a typical employee pays.

Below is a comparison of what employees pay vs self-employed:

This 15.3% self-employment tax applies to all net earnings over $400 per year from Instacart.

When to Expect Your Form 1099-NEC

Instacart is required to mail your Form 1099-NEC for 2022 earnings by January 31, 2023. This form not only goes to you but also directly to the IRS. So earnings must match what you report.

I botched this my first year by forgetting, losing it, and reporting way lower earnings than Instacart had on file for me. It triggered an audit, penalties, and a ton of stress!

So be ready on January 31st! Check all inboxes! If no 1099-NEC, immediately request a copy from Instacart.

Calculate Estimated Taxes Owed with This Formula

Here is exactly how to calculate estimated taxes you‘ll owe for 2024 so you can budget quarterly Estimated Tax Payment to the IRS and state.

1. Project your 2023 Instacart gross earnings
2. Subtract business mileage and other deductions
3. Multiple net earnings by 30% for taxes set aside
4. Divide by 4 = Estimated Tax Payment per quarter

Let me walk through an example:

• I project I will earn $60,000 gross with Instacart in 2024
• I track mileage diligently and estimate $8,000 in mileage deductions for the year
• So projected net earnings are $60,000 – $8,000 = $52,000
• 30% of $52,000 is $15,600 total taxes I need to set aside
• $15,600 divided by 4 = $3,900 Estimated Tax Payment each quarter

So in this example, I would need to send $3,900 payment to the IRS every 3 months to avoid a big tax bill and penalties next April 2024.

Claiming Business Deductions to Lower Your Tax Burden

• Track vehicle mileage with apps like Stride Tax to maximize this deduction – it‘s $0.625 per mile for 2024!
• If you use a cell phone for Instacart, deduct a portion of your phone and data bills each month.
• Insulated bags, coolers, wrappers, and other supplies can be deducted.
• Accounting software/tools and tax prep fees can also lessen your taxable income.

Claim all allowable deductions when you file to minimize taxes owed. Consult a tax professional to ensure you receive every deduction possible!

How to Actually File Your Taxes on Instacart Income

When filing your Form 1040 tax return, you will complete Schedule C to report your Instacart self-employment earnings from the 1099-NEC form. The exact method depends a bit on your tax situation:

• Use tax software like TurboTax Self-Employed or meet with a CPA
• Report gross earnings then all related business deductions
• Pay self-employment tax + federal/state taxes owed
• Consider S-Corp election after crossing $50k – $70k in net earnings to save taxes

I can‘t stress enough the value of an accountant here! I wasted money my first years doing it myself without capturing available write-offs.

Don‘t Forget About Quarterly State Taxes Too!

Beyond federal obligations through the IRS, you likely owe state income taxes on Instacart earnings. Check your state‘s threshold for getting hit with Quarterly Estimated State Tax payments.

For example, California requires estimated tax payments once you cross $850 in gross self-employment income. Whereas Texas doesn‘t impose state income tax at all.

In Closing…

I hope this guide gives you clarity on does Instacart take out taxes (they don‘t!) and your tax obligations as a self-employed Instacart shopper. Spend time upfront estimating taxes owed and deductions available. Be diligent with quarterly payments, record-keeping, and filing to avoid penalties. And consider getting professional tax help! Feel free to reach out with any other questions.