Everlance has received a number of inquiries from our California users about Prop 22 and the $0.30/mile reimbursement calculation. That’s why we asked the team at Block Advisors, a team at H&R Block specially trained in self-employed taxes, to help shed some light on this issue.
Everlance has partnered with Block Advisors for a special combined offer on expense tracking and tax prep. Their team is ready to help you through the tax filing process and get you every deduction you deserve.
Click here to learn more about Expense Tracking + Tax Prep from Everlance & Block Advisors.
You may recall that in November 2020 California citizens voted to classify gig workers as contractors via direct ballot measure Proposition 22 (aka “Prop 22”). This was an important measure to the millions of 1099 independent contractors in California because it further defined their relationship to the technology platforms used to source gig work around issues of pay, work hours, etc.
One important element of California’s Prop 22 is the “Minimum Earnings Guarantee” which requires some gig platform companies to provide a certain level of earnings for independent contractors.
According to the tax team at Block Advisors, the minimum earnings guarantee works similar to a tipped minimum for restaurant workers — the company must top-up pay for drivers who earn less than a minimum threshold (through each app’s regular compensation model).
When calculating the minimum earnings guarantee, participating (covered) gig companies will start with 120 percent of the pick-up city’s minimum wage, plus $0.30/mile multiplied by the number of miles driven while on “active time.” The definition of “active time” only includes the period of time beginning when you accept a delivery or ride, and ends when delivery or the ride is complete.
Yes, if the gig company tops-up your income, the portion of the top-up attributable to the $0.30/mile payment is taxable as business income, similar to other 1099 income. However, many 1099 workers will not be paid this $0.30/mile reimbursement if they earn at least the guaranteed minimum wage, according to Prop 22.
In either case, your total compensation reported in Box 1 of your Form 1099-NEC is taxable business income, which you will report on Schedule C of your 1040 tax return (1120-S if you are incorporated and you elected to be taxed as an S-corporation).
Even if you receive some compensation in the form of the $0.30/mile minimum wage guarantee reimbursement, the IRS Standard Mileage Rate (of $0.56/mile for 2021) is still fully tax deductible for business mileage.
So if you’re self-employed and using Everlance to track business mileage to maximize your tax deductions, Everlance recommends using $0.56/mile for your 2021 mileage.
If you want to review a real world example describing the minimum earnings guarantee, or learn more about how the Prop 22 healthcare stipend will affect your taxes, please check out this CA Prop 22 blogpost from Block Advisors.
If employees need to drive often to perform their jobs, businesses can either provide their staff with a company vehicle or have employees use their own personal cars for work. While offering company cars may seem like a good investment, there are tax considerations to keep in mind. Learn more about company vehicles here.
Looking to take control of your mileage reimbursement program? Learn about the modern way to manage mileage.
If you're looking to save on mileage, then FAVR may be the right employee mileage reimbursement program for you. It's a tax-efficient program that is customized to your mobile workforce. Learn more.