Venmo Taxes: How to Tell Whether You Owe Money
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If you’re using Venmo to split a restaurant check or collect your roommate’s half of the rent, you probably don’t have to worry about the tax implications of those transactions. But if you are collecting payments for a business using the popular app, you may need to settle up with the IRS.
The basic tax rules distinguishing business and personal income haven’t changed much, but there’s been some understandable confusion over Venmo payments in recent years. Here’s what’s going on:
» What do you owe? Check out NerdWallet’s tax calculator
As the IRS seeks to get a better handle on business income paid through Venmo and its competitors, the agency is in the process of tightening the reporting requirements for payment apps.
If you receive more than $600 in payments designated for goods and services via Venmo or another payment app in 2023, the operator of the app is supposed to send a Form 1099-K to you and the IRS detailing the record of those transactions. Previously, the threshold to trigger one of these forms was $20,000 and 200 transactions .
The IRS originally planned to roll out the new reporting requirements for payment apps for the 2022 tax year (taxes filed in 2023). While the IRS has delayed those plans by a year, be aware that some state tax authorities have chosen to move forward with the $600 threshold sooner. They include Maryland, Massachusetts, Vermont and Virginia.
How is Venmo taxed?
If you’re receiving payments as part of your work, you’re supposed to report that income to the IRS and pay applicable taxes. This is true whether you’re being paid by card, check, a sock full of quarters or — yes, Venmo.
That underlying concept has been true for years, but it is going to become easier for the IRS to track these payments.
The change may create some new work for you, though, even if you’ve always been scrupulous in your bookkeeping.
Why does Venmo need my tax information?
Venmo collects tax information in order to prepare a Form 1099-K for people who are using the service to collect payments for goods and services. Among the required information is a Social Security number or tax identification number.
If you don’t provide the requested details, Venmo says it is required by law to do what’s called “backup withholding” on your behalf. Backup withholding is a way for the IRS to try to make sure it gets your tax dollars no matter what, by hanging onto a chunk of your income if you haven’t entered identifying information.
The amount of your payments that are subject to withholding can vary over time, but it is currently set at 24% .
The good news is that, in many cases, backup withholding is not an issue if you provide the proper tax information and you haven’t had recordkeeping issues with the IRS in the past.
If you are subject to backup withholding, Venmo emphasizes that the platform isn’t hanging onto your money for its own benefit.
“Venmo is not keeping your money,” the company says on its website. “Payments placed on tax hold are in your account, but they're unavailable to you until you provide your tax info or until the next [monthly] backup withholding date.”
What does Venmo consider a taxable payment?
If you’re a business account on Venmo, then the platform considers all of your payments to be for business purposes. That means you’ll likely have to report that income on your taxes, and you’ll have to pay Venmo’s business fees.
But if you have a personal account, not every bit of money that comes your way on Venmo is necessarily considered to be taxable income. If you haven’t noticed, there’s an option that allows payers to report that a transaction is for “goods and services.”
The “goods and services” designation can entitle both the buyer and the seller to purchase protection, and it also allows Venmo to help itself to the same fees it charges business and charity accounts: 1.9%, plus 10 cents.
Where things could get complicated is if you occasionally accepted personal payments using a business account that was previously below the tax reporting threshold. Now, you’ll need to convince the IRS that the income reported on your forms from personal transactions isn’t related to your business.
How do you get tax information from Venmo?
While Venmo may send you forms in the mail, it’s pretty easy to get those forms through the app. Here’s what you do:
Open the Venmo app.
Tap the “settings” icon.
Open the tax documents option.
Pull up the year you’re looking at to see if there are any applicable documents.
Will Venmo provide any other tax documents?
Venmo may also send you tax documents if you buy and sell cryptocurrency on its app. Cryptocurrency taxes are generally calculated in the same way as other investments, such as stock: If you sell a crypto asset for more than you paid for it, you may have to pay capital gains taxes.
» MORE: Learn about crypto tax software
If you sold cryptocurrency on Venmo in 2022, the service will send you a gains and losses statement for use in preparing your taxes.
Can I get out of Venmo taxes by switching services?
Venmo is not alone in having to comply with the tighter IRS requirements. Other popular payment services have put similar programs in place.
There are some exceptions: Zelle says the new IRS restrictions do not apply to its network, for instance. And CashApp sends tax forms only to people who have business accounts.
But remember: Even if a third party such as an app is not reporting your income to the IRS, you’re still supposed to account for it when you file your taxes.
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