More than 83 million people use Venmo for peer-to-peer and business transactions, allowing them to split the bill for fun outings, dining out, or paying for goods and services. We all know the famous quote about taxes, and while they are certain – are they really certain for Venmo?
Do you have to pay taxes on Venmo payments? Yes, you have to pay taxes for incoming Venmo transactions if they exceed $600 and if the money received is for the goods and services you provided. Payments from friends and family on Venmo don’t count and aren’t taxed.
Table of Contents
Paying Taxes on Venmo
You don’t have to pay any new tax for using apps like Venmo. New tax changes for 2022 and the new threshold only affect the providers of goods and services – the people who are gaining income for their labor.
There will still be taxable and non-taxable sums, and under the law, you don’t need to report the non-taxable sources.
What Are the Taxable Sources?
If you’re using Venmo in your day-to-day transactions, it’s important to distinguish which income sources are taxable. These are:
- Government benefits (unemployment or disability payments)
- Cash income from gigs (yes, even if you’re paid in cash),
- Bonus from the employer,
- Hobby income – it’s a taxable income, but you can deduct expenses
- Lottery and gambling gains
- Most interest and dividends
- Depending on the amount, social security benefits can be taxable
What Are the Non-taxable Sources?
Receiving a gift from a friend through a cash app like Venmo, getting a roommate’s part of the rent, family sending you money, combat pay – these are all non-taxable sources, so you don’t need to pay taxes for them.
Earnings from a garage sale are not taxable, mainly because you would be selling items at a loss. If you’re selling stuff at a gain, then you quite possibly will owe a capital gains tax.
Money received for child support isn’t taxable. Also, if you receive an inheritance, it will not be taxable since all taxes will be paid before the heirs receive it.
You won’t be paying an income tax on these non-taxable sources, but you should make sure to note every transaction and keep copies of records if you need to prove that the sums are non-taxable. I advise you to keep a clean record of your transactions at all times.
As explained above, even if the transaction is essentially non-taxable, if the payer labels the transactions as a payment for goods or services through Venmo or any other cash app, you will have to pay taxes on it if you surpass the 2022 threshold.
What Constitutes a Payment for Goods or Services?
Whenever you receive money for goods you sold or services you provided, the person paying you through Venmo or any other money app can tag the transaction as a payment for goods or services. That instantly means that the sum paid becomes taxable if you receive more than $600 per year.
Does That Mean That I Have to Pay Taxes for Selling Old Items?
Yes, even if you are selling old, unused items or having a garage sale and accepting Venmo transfers, you will pay taxes if the purchases are tagged as goods and surpass the $600 limit. You won’t have to pay taxes if the payer labels the transaction as a personal one. Basically, it’s up to the person who will be making a payment whether and how they will tag the transaction.
Venmo Business Account and Taxes
If you open up a business account on Venmo, whenever you receive money on it, it will automatically be tagged as a payment for goods or services, and as such, it is taxable by default. Having a Venmo business account makes your business and your clients eligible for purchase protection, which can present an additional layer of security for both your business and your customers.
Does Venmo Report Income?
Since Venmo is a payment settlement entity (PSE), it has to be compliant with all IRS regulations. According to these regulations, all PSEs have to report income and send a copy of the 1099-K forms to the IRS. Even if you switch platforms, nothing will change. All of them are required to send 1099-K form copies to the IRS.
What Is a 1099-K Tax Form, and What’s It Used For?
A 1099-K Form is an information return for the IRS that reports payment transactions, all in order to improve voluntary tax compliance and regulate the very popular Gig Economy. It’s basically a form reporting that you received payments from card transactions, including debit, credit and stored value cards, or any third-party payment network (Venmo, PayPal, Upwork, Fiverr, Etsy).
Does Venmo File 1099-K Forms? Since Venmo falls under the third-party payment networks, all your transactions that fall under goods or services will be shown on your 1099-K form, refunds included.
Why Do You Have To Confirm Your Tax Data on Venmo?
In order to stay compliant with the IRS laws and regulations, Venmo and all other platforms require their users who are reaching the threshold limit of $600 to confirm their tax data. Venmo will put your balance on hold until you confirm your tax information. The tax information includes Social Security Number (SSN), Employer Identification Number (EIN), or Individual Taxpayer Identification Number (ITIN).
Why Haven’t I Heard About This Before?
If you are asking yourself, like many people out there, “Why didn’t I have to pay taxes on Venmo transactions before?”, the answer is quite simple. The regulations changed in 2022.
Before 2022, the threshold for the 1099-K form used to be much higher, so many people who sold items online were exempt. The threshold was $20,000 and 200 transactions, while the threshold now is all incoming payments that gross $600 in one year, no matter the number of transactions.
Even before 2022, all payment settlement entities sent the 1099-K forms to the IRS, but because of the threshold, many people weren’t affected by this.
|Time period||Reason to file a 1099-K form|
|Before 2022||Gross Payments over $20,000More than 200 transactions|
|After March 11, 2021||Only for provisions of goods or services settled through a 3rd party payment network|
|2022 and after||Gross Payments over $600,|
Any number of transactions
Caution to the Wise – Tax Mistakes
Before December 31, 2021, and new tax regulations, it would have been next to impossible to fall under the tax category where you would have to justify your income. Amassing $20,000 if you weren’t doing any business or a gig would be fairly hard.
But with the new laws, it’s actually the opposite. Many taxpayers will receive a 1099-K form as of 2022, many of whom have never received one before. Splitting a dinner with a friend or sending a cash gift through any of the payment apps, including Venmo, might wrongfully be reported on the 1099-K form as a taxable income.
As I explained above, the payer will have to designate the transaction as personal rather than as a business transaction. If you get a 1099-K with wrongly reported income, you will have to get in touch with the Third Party Settlement organization to file a corrected form.
Let’s Sum It Up
If you want to avoid getting taxed for a simple transaction, make sure that the people sending you money through Venmo and other cash apps properly label the transactions, and be aware of the severely reduced threshold.