Driving for ride-hailing services is a really popular job. And it can be profitable. In fact, RideShare Guy indicates that Uber drivers typically earn around $15 to $25 per hour.
However, before you start driving, it’s important to consider some key financial factors to determine how much money is actually likely to arrive in your checking account if you try this program. Here are the four biggest.
1. Increased cost of auto insurance
A standard auto insurance policy typically will not provide coverage while driving for Uber or Lyft, as this is considered business use of the vehicle. And while Uber and Lyft offer some secondary insurance coverage, drivers are expected to maintain their own policies.
Unfortunately, adding ride-hailing endorsements to an auto policy costs an average of $94 per year. It is important to keep this additional expense in mind.
Furthermore, the more often a person drives, the greater the chance of having an accident due to pure chance. Simply put, if you spend 40 hours a week on the road instead of 10, there’s simply more time for something to go wrong. And having an accident can cause auto insurance premiums to increase significantly over the years, so this potential risk needs to be taken into consideration.
2. Additional cost of wear and tear of a vehicle
Driving a car more naturally means more wear and tear. Tires and brakes will need to be replaced more often, and the oil will also need to be changed more frequently. Putting more miles on a car also increases the rate at which its value depreciates.
And you’ll probably need to buy a car earlier than you did because you’re putting so many more miles on your vehicle (and since both Uber and Lyft enforce rules regarding how old a car can be to drive passengers).
If you were to buy a new car a few years ago, and have to incur additional maintenance and repair costs each year, it can really add up, so be sure to consider these expenses. To figure them out, consider how many extra miles you’re driving each year and how that affects your repair and maintenance needs.
For example, if you need to change your oil every 5,000 miles and you put an extra 10,000 miles on your car per year due to driving for Uber or Lyft, you’ll need to factor in the price of two additional annual oil changes. will be.
If you’re driving more, it stands to reason that you’ll be spending more gasoline. It is easy to calculate.
- Pay attention to how many miles you drive and what your gas mileage is.
- Once you see how many extra gallons of gas you’re using through this approach, multiply that number by the price of a gallon of gas.
4. Self-Employment Tax
Finally, there’s one more thing you might not think about – additional taxes. When you drive for Uber or Lyft, you are an independent contractor, not an employee. You will receive a 1099 form and will have to pay your small business taxes yourself.
In addition to budgeting for this additional expense, you also need to realize that it means you’re personally going to pay more Social Security and Medicare taxes. Your employer typically covers half of these taxes when you’re a traditional employee (called a W-2 employee). But as a 1099 contractor, you must pay your half and the employer’s half, so you will pay an additional 7.65% on taxes.
It is very important to think about these additional costs before deciding whether driving a ride-hailing vehicle is good for you. Be sure to do the math before you dive.
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