How to Determine Whether You Owe Money If You Used Venmo?
That depends on whether you accept payments from clients or customers. You probably won’t need to worry about the tax repercussions of using Venmo to divide a restaurant check or collect your roommate’s share of the rent. However, if you use well-known software to collect payments for a business, you might have to make amends with the IRS.
Although the fundamental tax laws separating business from personal income haven’t altered significantly, Venmo payments have recently caused some understandable misunderstandings. Here is what’s happening:
The IRS is already strengthening the reporting requirements for payment apps. They do this to better understand corporate income paid through Venmo and its rivals.
In 2023, if you use Venmo or another payment app to get more than $600 in payments for goods and services, the app’s owner is required to issue a Form 1099-K to you. And the IRS outlining the details of those transactions. Previously, the amount needed to initiate one of these forms was $20,000.
How Is Venmo Taxed for 200 Transactions?
You must declare any income you get as a result of your employment to the IRS. And pay any associated taxes. This is valid regardless of the payment method—credit card, check, a sock full of quarters, or, yes, Venmo.
The fundamental idea still holds today, but it will be simpler for the IRS to keep track of these payments.
Even if you’ve always been meticulous with your bookkeeping, the move may add some new tasks for you to complete.
Why Is My Tax Information Required by Venmo?
When someone uses Venmo to collect payments for products and services, the company gathers tax information. And they create a Form 1099-K for them. A Social Security number or tax identification number is one of the details needed.
Venmo claims that if you don’t supply the relevant information, it is mandated by law to perform “backup withholding” on your behalf. By holding onto a portion of your income if you haven’t submitted identifying information, the IRS can try to ensure that it always receives your tax money.
Your payments’ subject-to-withholding amount may change over time, but it is currently fixed at 24%.
The good news is that backup withholding is frequently not a problem. Especially if you give the correct tax information and you haven’t previously run into recordkeeping concerns with the IRS.
Venmo stresses that it isn’t holding onto your money for its gain if you are subject to backup withholding.
What Kind of Payment Is Deemed Taxable?
The platform considers all of your payments to be made for business purposes if you have a Venmo business account. As a result, you’ll probably need to declare that revenue on your taxes and pay Venmo’s business expenses.
However, not all of the money you receive through Venmo if you have a personal account is automatically regarded as taxable income. In case you missed it, there is a field where payers can indicate that a transaction is for “goods and services.”
The “goods and services” categorization enables Venmo to collect the same fees it does for business. And charity accounts, as well. 1.9% plus 10 cents, and it can also allow the buyer and seller to purchase protection.
If you occasionally accepted personal payments using a business account that was previously below the tax reporting level, things could become tricky. You must now persuade the IRS that the money from personal transactions stated on your forms has nothing to do with your company.
Can I Switch Services to Avoid Taxes?
Venmo is not the only company that must adhere to the stricter IRS standards. Several well-known payment services have implemented such initiatives.
A few things are an exception. For instance, according to Zelle, its network is not affected by the new IRS limits. Additionally, CashApp exclusively delivers tax forms to users with business accounts.
But bear in mind that you must still account for any money you receive even if a third party, such as an app, does not disclose it to the IRS.
Contact Your Part Time Accountant if you have any more questions, and our tax experts will help you right away.