Venmo Taxes: When To Expect Form 1099-K
Although changes won't take effect until the 2024 tax year, some states may see changes with Venmo taxes even sooner.
Worried about Venmo taxes? For tax year 2023, small businesses in certain states may receive IRS Form 1099-K from Venmo. For tax year 2024, even more small businesses will be affected. 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.
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What Is Form 1099-K?
Before jumping into the new laws surrounding Venmo and Form 1099-K, it’s important to understand what this tax form is. 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.
What Is The New Venmo 1099-K Tax Law?
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 under the American Rescue Plan simply make sure that this income is reported. For tax year 2024, 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. Before 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 or more transactions during the year.
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.
Venmo 1099-K Tax Law Changes For 2023
In November 2023, the IRS delayed the implementation of the new law until tax year 2024. This means the reporting threshold remains at $20,000 or 200 transactions for most states for tax year 2023.
However, there are a few exceptions, as some states have lower thresholds as follows:
- Illinois: $1,000+ and 4+ separate transactions
- Maryland: $600+
- Massachusetts: $600+
- Vermont: $600+
- Virginia: $600+
Venmo will also file form 1099-K for any user that is subject to backup withholding in 2023.
Do I Have To Report Peer-To-Peer Payments As Income?
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.
Even if a 1099-K has not been sent by Venmo or similar apps, peer-to-peer payments must be reported as income.
How To Report Venmo Taxes On Your Tax Return
In most cases, you will include income from Venmo 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 tax deductions further along on your Schedule C.
What If I Didn’t Receive A 1099-K From Venmo?
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, if you are using Venmo for business or personal payments, you are required to report income to the IRS, state, and local tax authorities regardless of whether you receive Form 1099-K.
Do I Need To Keep Payment Records From Form 1099-K?
You must 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 taxable amount, you must keep good financial records.
One of the easiest ways to track your income and expenses is with accounting software. You can get started by comparing the best small business 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 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.
Finally, don’t forget to check out our other tax resources. If you’re self-employed, our guide to self-employment taxes can help guide you through tax season. If you own a small business and Venmo is just one of the payment methods you accept, our complete guide to small business taxes is a great resource for beginners. You can also learn more about filing taxes for the first time or lower your tax liability with the top small business tax deductions.