Tax Reporting for Venmo and Other Transaction Services

Last year the IRS began announcing changes to the tax reporting requirements for transactions on services like Venmo, Paypal, CASH, and others. Their concern was that businesses were not reporting the income that they received on these platforms.

They were planning to reduce the tax reporting threshold for 2022 goods and services received from $20,000/year to $600/year, which would dramatically increase the number of people subject to the reporting requirements. As of now, the IRS has delayed that change until 2023 tax reporting, which would be filed in 2024. However, several states, including Virginia, have a lower threshold requirement of $600 for 2022 so I wanted to outline how to handle these tax documents.

If you are required to report anything, you will get a 1099-K tax document from the service. On Venmo specifically, the transaction has to be coded as a “protected transaction” for goods and services by either the payer or recipient in order for the tax document to be initiated. The image below shows how this is done, by toggling on the “purchases” button during a transaction.

So, if you were splitting a bill or being reimbursed for an expense and it was not coded this way, you will not get this tax document. However, some people may receive the tax document even though it was not a transaction for goods or services. When I called Venmo’s tax department they explained that many people are getting these tax documents because family and friends accidentally “protected the transaction.”

If you accidentally get this tax document, review each transaction to ensure it was actually a business transaction. Then report the correction to the institution so a correct tax document can be created. If no correction is made and you report a different amount on your tax return, you likely increase the odds of an audit due to the inconsistency.

Happy Planning,

Alex

This blog post is not advice. Please read disclaimers.