Venmo Tax Reporting, The IRS, and 1099-K Forms: What You Need to Know

Venmo tax reporting is the new hot topic this year. The Internal Revenue Service has issued some new rules for reporting business income through payment services such as Venmo, PayPal, CashApp, and other third-party payment processors and it has left many taxpayers with a lot of questions. We are going to answer some of them for you. Let’s get started.

What is Venmo Tax?

Venmo Tax is a new 1099-K reporting rule that requires certain transactions made through Venmo to be reported to the Internal Revenue Service (IRS). It applies to any business transactions made through Venmo over $600 for goods and services.

The New Venmo Tax Requirements

Venmo Tax requirements under the 1099 rules are important to understand and follow in order to ensure compliance with the new tax rules outlined by the Internal Revenue Service.

The new 1099-K rule has dramatically lowered the gross payments threshold to just above $600 for the calendar year. As a result, transactions over this amount, regardless of which third-party payment platforms made the payment, can signal the IRS to send form 1099-K.

The 1099-K form and Venmo Taxes

Form 1099-K is an IRS information return that allows for greater voluntary tax compliance. It reports payment transactions made through credit and debit cards, as well as those made through third-party networks that exceed $600.

Recent changes in tax reporting are now requiring Venmo and other payment apps to report earned income and have left some confusion for taxpayers. In past years the threshold was much higher and was only reported if a business had more than 200 transactions and made more than $20,000.

Many people worried that their personal transactions would be taxed in addition to their business transactions but that is not the case. As a result, the Internal Revenue Service has decided to delay the new rules for one year. Venmo has the option to open a business account to keep your personal and business transactions separate.

This will be a big help because digital payment platforms also send their yearly reports to the IRS and any unreported income you have can prompt them to take a closer look at your income and may have serious tax implications.

How to Report Income from Venmo

Understanding how to go about reporting your income from Venmo can be very helpful. Following we will give you a step-by-step guide to help you navigate the new tax rules.

1. How to get the 1099-K for Venmo

If a user’s account meets all the tax requirements they will receive a digital copy of Form 1099-K from Venmo. Users will also be able to download them on Venmo.com. If you are unable to locate or do not receive a 1099-K form, chances are that you did not meet the income limit to file.

2. Separate personal payments from taxable income

Venmo is set up so that you are able to create a business account that is separate from your personal account. This will ensure that only transactions made from your business will be reported.

If the payments are from a job, make sure you find out how to file self-employment taxes.

3. Make sure Form 1040, or 1040-ES, and your Schedule C are filled out

Making sure you include the correct tax documents is essential. The 1099-K is only a summary of your earnings made through Venmo or other payment apps.

You will need to make sure your Form 1040, which reports your gross income for the entire year, and your Schedule C which is where you will report gross income from your small business that is not earned from Venmo or other payment apps.

In case you are unsure, filling out the 1040-ES is how to file self-employment taxes. It is important to know what income tax brackets you fall under if you are claiming for standard deduction 2022 if you have chosen not to itemize.

Any deduction due to business expenses should also be claimed on your Schedule C. Once you have filled these out and insured all information is correct, your 1099-K form should be attached to those forms to submit to the IRS.

4. Submit all tax forms

The very last step is to double-check all the information on your forms and file them with your tax return.

What if You Don’t Recieve Your 1099-K Venmo Form

Some accounts may not have reached the set taxable threshold. In this case, it is probable that you will not receive a 1099-K form from Venmo as they are unable to send the forms to those who do not qualify.

If this happens it is advisable to download and keep a copy of your statement for your records.

Tax Deductions

If you like saving yourself some money then it is very necessary to know what you are able to claim for your tax deductions as a business owner using Venmo. Let’s check out a few of them together.

Home Office Expenses. Deductions for your home office expenses include a portion of your monthly payment for the property as well as costs for electricity, home repairs, and even insurance costs.
Business Expenses. You are able to deduct the costs of anything related to running your business including but not limited to office supplies, phone, and phone bills, and computers and software expenses including some of the best tax software.
Fees for Professional Services. You are able to deduct professional services fees such as those paid to lawyers, accountants, and payment processors as business expenses.
Travel Expenses. Any travel expenses incurred due to travel for business purposes can be claimed as deductions on your taxes. Generally, this will include the cost of airfare or vehicle expenses, lodging, and meals. Make sure to keep all your receipts to show proof of your expenses.

A Note About Venmo Business Accounts

Creating a Venmo for business account can save you time and effort when it comes to filing your taxes.

All of your business transactions made through Venmo will be tracked in one place and you will be provided with the necessary forms to report your earnings when tax time rolls around.

The Bottom Line

The bottom line is that reporting taxes is a fact of life. Venmo and other payment applications will now be able to make it easier than ever to track and file the correct information to insure the compliance that the IRS is looking for and to save you a lot of hassle.

If you need more tax advice on this subject you can check out Venmo.com or consult a tax professional. You can also keep an eye on this side business taxes guide.

Does Venmo send a 1099-NEC?

IRS form 1099-NEC is not sent to Venmo users as it is only for people who use direct payment methods and have earned $600 or more.

Instead, Venmo sends out the 1099-K when it is determined that a user had made $600 through indirect payment methods.

Is Venmo taxed?

The Internal Revenue Service (IRS) has decided to postpone the enforcement of the $600 reporting ceiling and will instead be utilizing a $20,000 and 200 transaction maximum.

There are some states that have implemented even lower reporting limits and details will be updated on Venmo’s page as they are given.

What is the 1099-K threshold for the 2022 tax year?

In the calendar year 2022, third-party settlement organizations that issue the 1099-K tax form must only submit reports for transactions where the total payments to small business owners are greater than $20,000 and there are more than 200 of them.

Will you get taxed on personal Venmo payments?

There have been a lot of rumors and misunderstandings when it comes to the new Venmo tax reporting.

Venmo will not tax your personal payments. In fact, they will only report income for persons or businesses that use third-party payment apps for their business transactions that exceed the threshold set by the IRS.

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This article, “Venmo Tax Reporting, The IRS, and 1099-K Forms: What You Need to Know” was first published on Small Business Trends

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