Venmo transactions that are used to split a restaurant bill or collect half of rent from a roommate don’t need to be taxed. However, if you collect payments from a business that uses the popular app you might need to file a settlement with the IRS.
Although the basic tax rules that distinguish business income from personal income have not changed, there has been confusion about Venmo payments in recent times. Here are the facts:
The IRS is working to improve its understanding of Venmo’s business income and other payment methods.
In 2023, if you have received more than $600 in payments for goods or services through Venmo or another payment platform, the app’s operator is required to send you a Form 1099K detailing the transaction record to the IRS. The threshold for triggering one of these forms used to be $20,000 or 200 transactions.
Tip
Original plans by the IRS to introduce new reporting requirements for payment applications for the 2022 tax year (taxes paid in 2023), were stalled. Although the IRS delayed these plans for a year, some state tax authorities chose to go ahead with the $600 threshold sooner. These include Virginia, Massachusetts, Vermont, and Vermont.
How much is Venmo charged?
You are required to declare income received as part of your job and pay any applicable taxes. This applies regardless of whether you receive payments by check, card, quarters, or Venmo.
This underlying principle has been valid for many years. However, it will be easier for the IRS track these payments.
Even if your bookkeeping has been meticulous, the change could create new work.
Why Venmo needs my tax information?
Venmo gathers tax information to prepare Form 1099-K. This form is for those who use the service to collect payment for goods or services. A Social Security number and tax identification number are required.
Venmo will require backup withholding if you do not provide the required information. The IRS uses backup withholding to ensure it receives your tax dollars regardless of what. It holds onto a portion of your income if your identifying information is not provided.
While the amount of your payments subject to withholding may change over time, it currently stands at 24%.
Good news: Backup withholding is often not an issue in most cases if you have the correct tax information and haven’t had any recordkeeping problems with the IRS.
Venmo will not withhold backup withholding if you have to.
The company claims that “Venmo does not keep your money.” “Payments on tax hold are still in your account but they won’t be available until you give your tax information or the next [monthly] backup withholding.”
What is Venmo’s definition of a taxable payment,
Venmo considers all payments made to business accounts as business expenses. This means that you will likely need to report the income on your taxes and pay Venmo’s fees.
Venmo does not consider all income that you receive from Venmo to be taxable income if it is a personal account. Payers can report that a transaction was for “goods or services span>”
Venmo can give protection to both buyers and sellers by using the “goods and service” designation. Venmo also has the ability to pay the same fees as business accounts and charity accounts for 1.9% plus 10 cents.
If you accept personal payments from a business account, it could cause problems. You will need to convince IRS that income from personal transactions reported on your tax forms is not related to your business.
How can you obtain tax information from Venmo
Venmo might send you forms by mail, but it’s easy to access those forms via the app. Here’s how it works:
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Open Venmo. -
Click the “settings” icon. -
Select the tax documents option. -
To check if any documents are applicable, pull up the relevant year.
Venmo will provide other tax documents
Venmo can also send tax documents to you if you purchase or sell cryptocurrency through its app. The taxes on cryptocurrency are calculated the same as other investments like stock. If you sell a cryptocurrency asset for more than what you paid for it for, you might have to pay capital gains tax.
Venmo will send you a gain and loss statement if you have sold cryptocurrency in 2022. This information can be used to prepare your taxes.
Is it possible to get rid of Venmo taxes by switching to other services?
Venmo isn’t the only one that must comply with tighter IRS regulations. Similar programs have been implemented by other popular payment companies.
However, there are exceptions. Zelle claims that the IRS restrictions don’t apply to its network. CashApp only sends tax forms to individuals who have business accounts.
Remember: Even though an app or third party doesn’t report your income to the IRS you still have to account for it in your taxes.