Lyft Driver Taxes in Kentucky - 2026 Guide

Updated for 2026 (Filing 2025 Taxes)

Tax Essentials for Lyft Drivers in Kentucky

Navigating the Bluegrass State as a rideshare driver with Lyft offers flexibility, but also brings unique tax responsibilities. As an independent contractor, earnings from Lyft are considered self-employment income, requiring diligent record-keeping and accurate tax filing.

The IRS requires Lyft drivers to report their income on Schedule C (Profit or Loss from Business) with Form 1040. 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 Kentucky Handles Gig Worker Taxes

As a Kentucky resident, a state income tax return is required, regardless of whether you owe any tax. Kentucky operates under a flat income tax rate, currently at 4.0% for the 2025 tax year. This means all taxable income is taxed at the same rate. Lyft drivers, being self-employed, will report their income and expenses on Kentucky Form 740-NP, "Kentucky Nonresident and Part-Year Resident Income Tax Return," even if a full-year Kentucky resident. This form is used to calculate the net profit or loss from your rideshare business. Kentucky also requires the payment of estimated taxes quarterly if your expected tax liability exceeds $500. Failure to pay estimated taxes can result in underpayment penalties. Kentucky does not offer a specific deduction for the federal self-employment tax, meaning you calculate your federal adjusted gross income (AGI) first, then apply the Kentucky tax rate to that figure. It's crucial to maintain detailed records of all income and expenses related to your Lyft driving to accurately complete your Kentucky tax return. Kentucky's Department of Revenue provides resources and assistance for self-employed individuals; more information can be found at the Kentucky Department of Revenue website.

Top Tax Deductions for Kentucky Drivers

• Standard Mileage: The most popular and often most beneficial deduction. For the 2025 tax year, the standard mileage rate is 70 cents per mile. Given Kentucky's relatively moderate gas prices, the standard mileage rate is likely to be a favorable option for most drivers.
• Tolls & Parking: Kentucky has some toll roads, particularly around Louisville. Keep accurate records of all tolls paid while actively driving for Lyft. Parking fees incurred while waiting for or transporting passengers are also deductible.
• Phone & Data Plan: You can deduct the percentage of your phone bill that is directly related to your Lyft driving activities. For example, if you use your phone 60% of the time for Lyft-related tasks (navigation, driver app, communication), you can deduct 60% of the bill.
• Vehicle-Related Costs: Expenses like car washes, air fresheners, phone mounts, dash cams, and insulated food bags used for deliveries (if applicable) are deductible. Keep receipts for these purchases.

Key Warning: You cannot deduct both the standard mileage rate and actual car expenses (like gas, oil changes, repairs, insurance) 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 is comprised of two parts: 12.4% for Social Security and 2.9% for Medicare. Unlike traditional employment, Lyft and other rideshare platforms do not withhold these taxes from your earnings. Therefore, it is your responsibility to calculate and pay this tax, typically through estimated tax payments made quarterly to the IRS. This tax is calculated on your net earnings – your gross income from Lyft minus your allowable business deductions.