Tax Obligations for DoorDash Earnings in Canada and the United States

When you earn income from various sources, it is crucial to understand your tax obligations. This article focuses on the tax implications of earning income from a job and from working with DoorDash, particularly in the contexts of Canada and the United States. We will go through the calculations and factors that determine your tax liability, including potential deductions and credits.

Overview of Earnings and Tax Obligations

When you earn $70,000 in Canada from a job and $4,000 from DoorDash, you might wonder how much tax you owe. Here’s a breakdown of the factors that impact your tax liability:

No Deductions Applied

If no deductions are applied to the $4,300 from DoorDash, you will owe around $600 in Social Security tax. If the $4,300 is your only income for the year, you won't owe any income tax.

Variable Tax Rates by Province/State

Tax rates can vary significantly depending on the province or state you are in. For example, in certain provinces like British Columbia in Canada, the rate would be around 33%. These tax rates might allow for several deductions such as vehicle maintenance, children (if you have minors), and other expenses like gas. If you are married, your spouse's income will also need to be considered.

For a more accurate tax advice, it is recommended to seek assistance from a professional tax preparer. These professionals can ask the proper details and provide you with better advice than generic information found on forums or websites like Quora.

Estimating Tax Liability

Without detailed information about your income and expenses, it is challenging to provide an exact tax liability. However, you can estimate your tax using online calculators. It's important to have an idea of how much tax you have already paid. The $4,000 earnings from DoorDash are fully taxable.

Specific Example for an American Earnings Distribution

Let's consider a specific example for an American income distribution:

You are a United States citizen or permanent resident You are an unmarried individual in 2020 You had no dependents in 2020 You could not be claimed as a dependent in 2020 You were between the ages of 25 and 64 in 2020 You had no income in 2020 other than your $4,000 from DoorDash You drove a total of 500 miles in 2020 to make your DoorDash deliveries and You had no other expenses of being a DoorDash driver other than your auto mileage

Here’s how to calculate your 2020 federal income tax:

Start with the $4,000 of income and subtract your auto mileage expense at the standard mileage rate of 57.5 cents per mile. The deduction for 500 miles is $287.50. Therefore, your net business income is $4,000.00 - $287.50 $3,712.50. Next, compute your “net earnings from self-employment” by multiplying your net business income by the factor 0.9235. $3,712.50 x 0.9235 $3,428.49. This is your tax base for the self-employment tax that funds Social Security and Medicare. The self-employment tax is computed at a rate of 15.3 percent. $3,428.49 x 0.153 $524.56. Next, subtract half of the self-employment tax from your net business income. Half of $524.56 is $262.28. $3,712.50 - $262.28 $3,450.22. This is your adjusted gross income and your earned income. Your standard deduction as a single individual in 2020 is $12,400, so your taxable income and your income tax are both zero. Because you were at least 25 but not yet 65 in 2020 with no dependent children, you are eligible for an earned income credit of 7.65% of your earned income. $3,450.22 x 0.0765 $263.94. Your net federal tax bill is equal to your self-employment tax minus your earned income credit. You owe $524.56 - $263.94 $260.62. It is due on May 17, 2021.

Conclusion

Understanding your tax obligations is crucial for minimizing tax liabilities and ensuring compliance. Whether you are in Canada or the United States and earning income from jobs or gig work, it's important to consider all deductions and credits available to you. It's always a good idea to consult a tax professional to get tailored advice based on your specific financial situation.