Lyft Driver Taxes in Alabama - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Essentials for Lyft Drivers in Alabama

Navigating the scenic routes of Alabama as a Lyft driver offers flexibility, but also brings tax responsibilities. As an independent contractor, earnings from Lyft are considered self-employment income, requiring careful tracking and reporting to both the IRS and the state of Alabama.

The IRS requires all Lyft drivers to report their income on Schedule C (Profit or Loss from Business) when filing their federal income tax return. Furthermore, because no taxes are automatically withheld from your Lyft earnings, drivers are responsible for paying self-employment taxes, which cover both Social Security and Medicare. Failure to properly account for these taxes can result in penalties and interest.

How Alabama Handles Gig Worker Taxes

As a resident of Alabama, a state income tax return is required, even if no Alabama income tax was withheld. Alabama utilizes a graduated income tax system, meaning the tax rate increases as your income rises. For the 2025 tax year, Alabama’s tax brackets are expected to remain similar to prior years, ranging from 1.7% to 5.0%. Lyft drivers operating within Alabama will need to report their net earnings from Schedule C on Alabama Form A-4, the state’s individual income tax return. It’s crucial to accurately calculate your Alabama taxable income, considering all applicable deductions and credits. Alabama also allows for itemized deductions, which may be beneficial depending on your overall financial situation. Remember to keep detailed records of all income and expenses related to your Lyft driving activity to support your tax filings. The state also offers various credits, such as those for education or childcare, which could further reduce your tax liability. Consulting with a tax professional familiar with Alabama tax law is highly recommended to ensure compliance and maximize potential savings.

For more information on Alabama taxes, please visit the Alabama Department of Revenue website.

Top Tax Deductions for Alabama Drivers

• Standard Mileage: The most popular and often simplest deduction. For the 2025 tax year, the standard mileage rate is 70 cents per mile. Given Alabama’s relatively moderate gas prices, the standard mileage rate is likely to be a beneficial option for most drivers.
• Tolls & Parking: While Alabama doesn’t have extensive toll road systems, any tolls incurred while actively driving for Lyft are deductible. Parking fees directly related to picking up or dropping off passengers are also deductible.
• Phone & Data Plan: You can deduct the percentage of your monthly phone and data plan that is used for business purposes. Keep a log of your Lyft driving time to accurately determine this percentage.
• Vehicle-Related Costs: Expenses like car washes, air fresheners, phone mounts, dash cams, and insulated food bags used for deliveries (if applicable) are deductible.

Key Warning: You cannot deduct both the standard mileage rate and actual car expenses like gas, oil changes, or repairs in the same tax year. Choose the method that yields the larger deduction.

Understanding the 15.3% Self-Employment Tax

The 15.3% self-employment tax covers both Social Security and Medicare taxes. Unlike traditional employment where these taxes are withheld from your paycheck, as a Lyft driver, you are responsible for paying both the employer and employee portions. Platforms like Lyft do not withhold these taxes, so it’s essential to plan for this expense throughout the year, potentially making estimated tax payments quarterly to avoid penalties.