Do you have to pay taxes on your Venmo proceeds? The tax season is coming up quickly, and while no one wants to underreport their earnings, you also shouldn’t pay more than necessary. Understanding how Venmo taxes work can help you save money on your tax bill and stay in compliance.
Overview of Venmo and its Tax Implications
Venmo is a popular payment app for consumers and business owners. The app has over 75 million users since being founded in 2009 and acquired by PayPal in 2013. If you have made Venmo transactions for your business, the money you receive can be subject to taxation. The IRS has rules based on how many transactions you need to make and what amount you have to receive to file taxes on the proceeds.
Taxable Income from Venmo
Every payment you receive from Venmo in exchange for goods or services counts as taxable income. The IRS is requiring Venmo to withhold taxes from payments of $20,000 or more in 2022. You must have also conducted over 200 individual transactions throughout the year to have your money withheld for taxes.
The IRS originally planned on requiring Venmo to withhold taxes from payments of $600 or more, but they delayed the implementation of the $600 threshold by a year. It can take effect as early as the 2023 tax year, but some states already require you to report payments if you exceed $600 for the year. Maryland, Massachusetts, Vermont and Virginia each require you to report Venmo income if you earned over $600. You should check with your state’s requirements before assuming the threshold is $20,000. Venmo must report taxable income to the IRS if it exceeds $20,000. Business owners who surpassed this benchmark will receive a 1099-K form from Venmo. You can still make payments to charitable organizations without worrying about payments getting withheld.
How to Report Venmo Payments on Your Tax Return
You will have to fill out a 1099-K form that shows how much you received from Venmo. Venmo provides you with this document if you received over $20,000, but the IRS still expects you to report income even if you don’t fulfill the $20,000 threshold. Here are some steps you can take:
- Check whether Venmo provided you with a 1099-K. If it did, use its form to report your Venmo payments
- If you have not received a 1099-K, ask Venmo for a copy. Venmo may not give you a 1099-K if you have not received over $20,000 in Venmo and have fewer than 200 individual transactions.
- If neither of those approaches works, you can find a blank 1099-K and provide your taxable income for your Venmo activity. Hobby income goes on Schedule A, while business income belongs on Schedule C.
A tax expert can walk you through the process if you have any questions. It’s good to seek advice from tax professionals to ensure your paperwork gets filed correctly.
What You Can Exclude on Your Tax Return
You don’t have to include every Venmo transaction on your tax return. You only have to include commercial transactions as your taxable income. If you received a Venmo payment from a client, you would have to report that on your tax return. But if a friend gave you money to help cover a vacation expense, you do not have to include that on your tax returns — it’s a personal use for the money that isn’t tied to providing a good or service.
Records to Keep in Case of an IRS Audit
Here are some of the records you should hold onto in case the IRS audits your tax return:
- Any payments received, payments sent and fees charged by Venmo
- Purpose of the transaction, such as if it was a purchase or a loan, and any applicable taxes paid
- Any other related documentation, such as receipts or invoices
- Any taxes that were paid on Venmo transactions, such as local taxes, as well as any federal taxes that were paid on the income received through Venmo
- Any deductions taken on the income, such as business expenses or charitable donations.
Preparing for the Venmo Taxes and Tax Season
Venmo payments are one of the many income streams you may have to report to the IRS. Staying on top of your taxable income is a challenge for anyone. Bookkeeping services like Doola can reduce the burden and simplify the tax season so you can go back to doing what you love.
How can I avoid Venmo taxes?
You can’t avoid Venmo taxes for commercial transactions. But you don’t have to report personal transactions as taxable income.
Does Venmo send a 1099 for personal accounts?
Venmo does not send a 1099 for personal accounts. Only commercial transactions get taxed, during which the recipient obtained funds by selling goods or services.
Does Venmo report to the IRS?
Venmo reports payments to the IRS if the proceeds exceed the threshold.