Venmo Taxes
With tax season approaching, you may be wondering how the new IRS reporting rules might affect your Venmo transactions. The IRS requires all payment processors, including Venmo, to report taxable income for payments made for goods and services.
If you’re self-employed or have a side hustle, it’s important to understand how Venmo taxes work. The IRS requires that payment apps like Venmo, PayPal, and Cash App report any payments made to users that are for goods or services. This income is supposed to be reported on a 1099-K, or Payment Card and Third Party Network Transactions Form. The IRS originally planned to require reporting of these transactions in 2022 but has since delayed this plan until at least 2023.
The delay poses a problem for gig workers, small businesses, and casual Venmo users. Without better outreach and communication from the IRS, it’s possible that more people will work around the reporting rule by keeping their personal and business transactions separate.
Luckily, the IRS won’t be able to tell whether you used your Venmo account for personal or business transactions. But the $600 threshold applies to anyone who earns money from a side hustle or freelancing. This could include people renting out rooms on Airbnb, selling handmade goods on Etsy, or even running a website with advertisements.
If you use Venmo for business, you should know that the IRS requires the platform to send you a 1099-K at the end of the year if you have received more than $600 in payment fees from the site. This is called backup withholding and is designed to make sure that the IRS gets its tax dollars no matter what.
Personal Transactions
One of the key features of Venmo is its use in gifting money to friends and family. From birthday gifts to splitting restaurant bills, these transactions are generally considered non-taxable and do not need to be reported. Payments for casual activities like sharing rent, utility bills, or expenses among roommates are generally not subject to taxes. These are often considered shared expenses and are treated similarly to gifts.
Business Transactions
If you are a freelancer or self-employed and receive payments for services via Venmo, these transactions are likely to be subject to taxation. Keep accurate records of your income and expenses, as you may be required to report them on a Schedule C when filing your taxes. Selling items or providing services through Venmo is equivalent to running a small business. The income generated from these transactions should be reported on your tax return, and you may be liable for self-employment taxes.
Some Misconceptions
Gift Tax Misunderstandings: While gifts are generally not taxable, there are limits to the amount you can gift each year without triggering gift tax implications. Consult the latest IRS guidelines to ensure compliance.
Cash Withdrawals: Transferring funds from Venmo to your bank account is not considered taxable income. The funds are already part of your account balance, and you are merely shifting them between accounts.
International Transactions: Be aware that international transactions through Venmo can have additional tax implications, including potential reporting requirements.
