Venmo Taxes: When To Expect Form 1099-K
As a small business owner, or even if you just frequently uses cash apps, you need to know the IRS rules for reporting cash app payments on your taxes.
Worried about Venmo taxes? In the 2024 tax season, more small businesses can look forward to receiving IRS Form 1099-K from Zelle, Cash App, and Venmo. However, Venmo taxes aren’t a new business tax liability.
Receiving Form 1099-K from Venmo doesn’t mean your business has to pay new income taxes. It just means your business has met the third-party payment reporting threshold, and it’s on the IRS’s record.
Keep reading to learn more about the new 1099-K tax laws, Venmo taxes, and what to do if your business receives Form 1099-K.
Table of Contents
- New Form 1099-Tax Law: Cash App, PayPal, & Venmo Taxes
- What Is Form 1099-K?
- Do I Have To Pay Taxes On Cash App, PayPal, or Venmo Transactions?
- Do I Have To Report Peer-To-Peer Payments As Income?
- How To Report PayPal & Venmo Taxes On My Tax Return?
- What To Do If I Didn’t Receive Form 1099-K?
- Do I Need To Keep Payment Records For Form 1099-K?
- The Bottom Line On Zelle, PayPal, & Venmo Taxes
- Cash App Tax FAQs
New Form 1099-Tax Law: Cash App, PayPal, & Venmo Taxes
Starting in the 2024 tax season, third-party payment providers will be required to send Form 1099-K to businesses that received $600 or more in income through their services. In short, businesses can expect to receive From 1099-Ks from third-party cash settlement services like Cash App, PayPal, Venmo, and Zelle.
The American Rescue Plan’s new Form 1099-K law isn’t a new tax, it is simply a measure to reduce underreporting income.
This means that your business may receive Form 1099-Kafter recording $600 or more in gross payments. Prior to the 2023 tax year, the threshold for receiving Form 1099-K was recording $20,000 or more in gross receipts and 200+ payments.
Nothing should change for businesses that accurately reported their income, as Form 1099-K is essentially a gross payments report. Your business would have been reporting and paying taxes on this income regardless of whether you received a 1099-K form previously.
Individuals using Cash App, Venmo, or PayPal exclusively for personal peer-to-peer payments or purchases will not be receiving Form 1099-K.
What Is Form 1099-K?
Form 1099-K is a federal tax form used to report payment transactions, specifically payment card transactions, and third-party payment network transactions (think: Venmo, Cash App, PayPal, etc.).
Form 1099-K reports gross payments, including those that may not need to be reported under your business’s income, such as income recorded when you share a payment terminal with another business.
Do I Have To Pay Taxes On Cash App, PayPal, or Venmo Transactions?
If you are required to file a tax return, you must report all income. Even if you didn’t receive a Form 1099-K in the past, you should have reported the taxable income you received through Venmo, PayPal, and other cash app transactions on your tax return.
The new rules simply make sure that this income is reported. If you receive over $600 in income through these sources, you will receive a Form 1099-K, and a duplicate form will also be sent to the IRS.
You will pay taxes on any portion of funds considered taxable income. To be clear, this new regulation does not add a new tax. If you’ve previously accepted payments and have earned taxable income through Venmo, PayPal, and other cash apps, you’ve paid taxes on these funds in prior tax years. With the new regulation in place, only reporting requirements using Form 1099-K have changed.
Do I Have To Report Peer-To-Peer Payments As Income?
Yes, businesses are required to report peer-to-peer payments as income when they use third-party peer-to-peer payment network services such as Venmo, Cash App, or Zelle to accept payments.
Starting in the 2024 tax season, third-party payment network providers will be required to send out Form 1099-Ks to businesses that recorded $600 or more in gross payments during the tax year.
Prior to the 2024 tax season, businesses can expect to receive Form 1099-Ks only if they recorded $20,000 or more in gross payments or recorded 200 and more transactions during the year.
Cash App Transactions That Are Taxed
Some of your cash app transactions must be included in your gross income that is reported on your tax returns. Transactions that are taxed include:
- Money received as payment for a service
- Money received as payment for goods sold
Money received as payment for goods and/or services encompasses a variety of scenarios. Someone that rents their vacation home through an online marketplace and gets paid through a third-party provider will be taxed on this income.
Likewise, a person that cleans houses or babysits as a side gig and makes over $600 doing so will also receive a 1099-K and have to include this income on their tax return. The same applies to someone that earns revenue by selling items on eBay.
Cash App Transactions That Are Not Taxed
Not all cash app transactions are taxed.
Transactions that can be excluded from income include certain kinds of P2P payments as well as other types of payments, such as:
- Money received from a friend as a gift
- Money received from a roommate to pay their portion of the bills
- Money received from a relative as reimbursement
- Money received from selling a personal item at a loss
- Charitable contributions
- Transactions for another business or person using a shared credit card terminal
- Transactions that occurred after buying or selling a business
- The cashback portion of customer transactions that received cash back from credit card purchases
How To Report PayPal & Venmo Taxes On My Tax Return?
If you receive more than $600 through cash apps, you will receive a 1099-K in 2024 for transactions that occurred during the 2023 tax year. As previously mentioned, a copy of this form will also be sent to the IRS, so it’s important that you remember to include all income on your tax return to avoid hefty penalties and interest.
In most cases, you will include this income on a Schedule C filed with Form 1040. The forms used may differ based on your business’s legal structure (for example, a Schedule E would be used by S-corporations and partnerships).
Also, keep in mind that the 1099-Ks you receive are gross receipts and may include income that is not taxable. You can exclude charitable contributions, reimbursements, and personal gifts. Additionally, you can lower your taxable income by claiming expenses and deductions further along on your Schedule C.
What To Do If I Didn’t Receive Form 1099-K?
As the IRS delayed the start of the new Form 1099-K laws, there is some confusion regarding what to do if you do not receive Form 1099-K for your business. Barring tax-exempt status, all businesses are required to report income to the IRS, state, and local tax authorities regardless of whether they receive Form 1099-k.
Do I Need To Keep Payment Records For Form 1099-K?
It is vital that you keep accurate records of your cash app transactions.
The 1099-K is an information return and includes the gross amount of all payments received. That means the $20 your friend sent through a payment app for half a meal out together may also be added in with income you’ve made through your business. To accurately calculate the amount that is actually taxable, you must have good financial records.
One of the easiest ways to track your income and expenses is with accounting software. It’s also a good idea to set up separate third-party payment accounts for business and personal use to make it easier to identify business transactions.
Some of the documentation you should keep for your records includes accounting software reports, bank statements, receipts, and tax forms.
The Bottom Line On Zelle, PayPal, & Venmo Taxes
The new cash app regulation put in place under the American Rescue Plan seems intimidating. However, the only difference that you should see is a 1099-K in your mailbox if you received more than $600 for goods and services paid for through these apps.
This new regulation ensures that this income is reported, so make sure that you keep accurate records and report all income sources on your tax return to avoid paying penalties and interest for underreporting.
Also, keep in mind that your 1099-K is essentially a gross receipt that does not include deductions or expenses that you or your business has incurred. Check out our other tax season content, including our guide to small business tax deductions, to lower your tax liability to the IRS. Good luck!