Verifying the Income of Ride-Hailing Drivers
A recent study by the JP Morgan Chase Institute showed that from late 2013 to the Spring of 2018, there was a 2,000 percent increase in the number of Uber and Lyft drivers. This is one of the fastest growing segments of the employment industry and is known as “gig” employment. These drivers are considered self-employed and the average driver earns $20 per hour.
A growing number of people living in affordable housing developments (HUD, LIHTC, etc.) are engaged in ride-hailing businesses and managers of such properties are required to verify the income of these individuals – even though the income may be sporadic. While sporadic and non-recurring income is usually not counted for housing purposes, since these drivers are considered “self-employed,” a reasonable determination of expected income is required.
Primary Verification Methods for Ride-Hailing Drivers
There are a number of options available for verifying the income of ride-hailing drivers, including the following:
- IRS Tax return, Form 1040, including Schedule C;
- Audited or unaudited financial statements (i.e., income/expense statement);
- Business loan application to a bank; or (as a last resort)
- A notarized affidavit regarding the net income from prior years.
In addition to these methods, all ride-hailing companies provide income statements showing monthly, quarterly, and annual earnings that are reported to the IRS. A Summary of Payments from the ride-hailing company is always available to the drivers and should always be requested.
If using applicant provided financial statements, the amount of income counted should be the net income to the business. This is the gross receipts minus legitimate business expenses. For tax purposes, ride-hailing drivers must keep receipts of business expenses and should be able to provide a breakdown of those expenses. Deductible expenses include:
- Passenger amenities (e.g., water, gum, etc.);
- Vehicle loan interest; and
- Note: only straight-line depreciation may be deducted for housing purposes. If a tax return or other document shows accelerated depreciation, managers may need to assistance of an accountant to determine the amount of straight-line depreciation.
Verifying the income of any person who recently started a business can be challenging, and this includes the income of ride-hailing drivers. In cases where tax returns have not yet been filed, a notarized statement from the driver with a statement of net income, along with income and expense records since the start of the business is recommended. From this information management may be able to determine a reasonable income projection, but there should still be follow up in a few months to ensure that the projection was reasonable.
As with all self-employed individuals, ride-hailing drivers are required to keep financial records. Using these records is generally the best and most acceptable method for determining the likely income of ride-hailing drivers.