Anticipated Income and Rideshare Drivers

Written by Jennifer Robinson, Spectrum Enterprises

Nowadays, many of us have apps on our smartphones that allow us to, within seconds, hail a ride from our exact location to our desired destination using only our fingertips. The ridesharing industry exploded onto the scene and changed the way millions of people get from Point A to Point B. Individuals worldwide now have the opportunity to work for themselves from the comfort of their own vehicles, and this has had a major impact on the work we do.

For decades, self-employed applicants and/or residents were rare. The most common examples were hairdressers and barbers or those selling products like cosmetics or food storage containers from catalogue companies. With the rise of the “gig-economy” has come a significant increase in self-employed individuals. It is important to understand that rideshare drivers are not employees of the companies that own the apps/services, they are considered “self-employed partners.” Instead of the pay checks that regular employees receive with taxes withheld, they are responsible for paying their own taxes on the payments they receive. At year end they are issued a Form 1099 or 1099K instead of a W2, and they file a Schedule C with their tax returns.

The HUD Handbook instructs that income from a business is handled differently than pay from regular employment. Instead of using the gross income from pay checks (as with regular employees), the net income from a business is used to determine income for self-employed individuals. It is not required that third-party verification be obtained or attempted and a series of pay checks is not sufficient proof of income. Instead, the individual must provide proof of their gross receipts/income and expenses. Many agencies also require copies of tax returns and current year-to-date income and expenses.

So, what does this really look like for rideshare drivers? Drivers can access and print their complete history. Should we request every last detail, the payments and tips received for every single ride they’ve given since they started working this gig – NO! A million times NO! Keep it as simple as possible, minimize the amount of paper used, and make the whole scenario easy to follow for anyone who may later review the resident’s file. Let’s start with the basics.

What you need to know:

1. When did this person start driving as a rideshare “self-employed partner”?
2. Do they drive using more than one company/app?
3. Since they started, did they stop for any substantial period of time?
   • If so, when and how long?
   • Is another pause or decline expected to repeat/continue? If so, why?

What documentation to request:

1. A Self-Employment Income Affidavit
   • Completed by the individual and detailing dates active, past gross income and expenses, and estimated income and expenses for the next 12 months.
   • If driving for multiple companies, a separate affidavit for each.
2. Tax Return(s) including Schedule(s) C
   • Recommended for at least 3 years
   • Or all years active if less than 3 years
   • And corresponding Form(s) 1099/1099K
3. Monthly Print Outs of Ride Income
   • This is a summary of the month, not a ride-by-ride or weekly or daily breakdown (remember, we are attempting to reduce the amount of paper in your file and make this simple and clear).
   • If they have been driving for multiple years, Spectrum recommends monthly history for the current year to date and the previous year.
4. Proof of Expenses
   • This is included on the Schedule C for previous years.
   • Receipts may be needed for current year if the income source is new and a full year’s tax return is not available.
   • Several ridesharing companies allow drivers to upload receipts, etc. to track their expenses along the way instead of having to keep separate records. The driver should be able to include this in their monthly summary if using this feature.

Remember it’s perfectly fine to tell someone they need to organize their shoebox of receipts into an organized format that you can follow, you are not their accountant and are not expected to act as one. That said, if they do have an accountant, a letter on letterhead from an accountant stating past, current, and expected future earnings can serve in place of actual receipts.

Remember, if they did not work in this field or for the same gig company for all of the previous year, the total net income on their tax return is not an exact estimation of what they will earn in the next 12 months. If they only drove for eight months in 2019, the amount from the tax return should at least be divided by eight and multiplied by twelve to represent a full year’s income. A more accurate approach would be to collect the monthly print outs from when they started through present to look for patterns, fluctuations, increases, etc.

Just as we were really starting to understand how to cope with this new form of income, the coronavirus (COVID-19) pandemic hit and it is important that we are aware of how this will impact our approach to determining income for rideshare drivers. It is not expected that the slow-downs will continue forever, using March-April 2020 income as a snapshot to represent the next 12 months is likely not accurate or appropriate.

In light of recent shutdowns and “social distancing”, it seems that income from this gig-economy source will need some additional analysis. As of March 17, 2020, Uber and Lyft have temporarily suspended their carpooling services (Pool and Shared) so that strangers cannot ride with one another in an attempt to flatten the curve of COVID-19. In large cities like New York and Seattle, this type of service was a substantial portion of several drivers’ fares.

Uber has reported as much as a 70% decline in trips in cities hardest hit by COVID-19. In an attempt to offset the income loss, several traditional rideshare drivers are turning to take-out food delivery services like DoorDash, Postmates, GrubHub, and UberEats. Don’t forget to ask about these.

It has always been important to analyze income and expenses related to self-employment, but the rise of the gig-economy has significantly increased the frequency of doing so in the LIHTC management and compliance industry. Don’t be afraid to ask for more information or documentation. If an applicant cannot provide enough organized detail, you may not be able to rent to them.