New IRS rules for 2023 and 2024

Venmo is a convenient platform for sending, receiving, and requesting money. But if you use Venmo for certain types of transactions, you could be on the hook for taxes.

The good news is that personal transactions on the payment platform typically don’t generate tax liability. It’s when you use Venmo for business purposes that you need to prepare for a tax bill.

If you’re confused about how taxes work on Venmo, keep reading. You’ll learn which Venmo transactions the Internal Revenue Service considers taxable and what you need to know while preparing your tax return. We’ll also explain some upcoming tax changes for Venmo and other payment apps you should prepare for in 2024.

Full coverage: Taxes 2024 — Everything you need to file your taxes on time

How the IRS treats Venmo transactions

When you’re sending money to friends and family using Venmo, you typically don’t need to worry about paying taxes or reporting the transactions to the IRS. But if you use Venmo or other peer-to-peer payment platforms, like PayPal or the Cash app, for business payments and purposes, you’ll need to report the income and pay taxes on the money you receive.

Here are some examples of transactions that you don’t have to report to the IRS or pay income taxes on:

• Your friend sends you money through Venmo to cover their share of a meal or Uber ride.

• Your mom Venmos you money as a birthday gift.

• Your roommate sends their half of the rent and electric bill to you via Venmo.

But if you use Venmo to collect payments for your small business or side hustle, or you’re selling items for a profit, you need to report the money you earn to the IRS and pay taxes on it. Here are some examples of Venmo transactions that result in reporting requirements, as well as tax liability:

• You’re a business owner selling T-shirts and crafts on Etsy and accept payments through third-party apps.

• You walk dogs or clean houses as a side hustle, and your clients pay you through Venmo or a similar platform.

• You’re a freelancer who gets paid through Venmo.

• You sell your old couch for more than you paid for it, and the buyer Venmos you the payment.

Note that these tax-reporting requirements apply no matter how you receive the money you earned. You’re required to report income and profits to the IRS and pay taxes on that money. It doesn’t matter whether you’re paid in cash or via check, direct deposit, credit card, or a third-party app. These requirements don’t change much from year to year.

Here’s where it gets confusing, though: The rules for when payment apps are required to report your income to the IRS and furnish you with tax documents are changing.

Read more: Can you use a credit card on Venmo?

Tax reporting changes for Venmo and PayPal in 2023 and 2024

Taxpayers who get paid from third-party apps like Venmo, Zelle, or PayPal, and those who receive payments from credit cards, debit cards, or gift cards may receive a tax document called a Form 1099-K. In some circumstances, a payment-processing company or third-party app will submit information about the money you earned to the IRS through Form 1099-K and send you a copy by Jan. 31 for the previous calendar year.

What’s changing is that the IRS is lowering the Form 1099-K reporting thresholds for Venmo, PayPal, and similar apps.

The American Rescue Plan, a COVID-19 relief package passed in 2021, included a provision requiring payment services like Venmo to provide users with tax form 1099-K if they had business transactions of $600 or more.

The new rule was originally scheduled to take effect for tax year 2022, but the IRS pushed back its implementation due to concerns about taxpayer confusion. For example, many people casually sell personal items, like clothing or furniture, for less than what they paid, which shouldn’t result in a tax bill. However, many people could have received Form 1099-K if they had such transactions that exceeded $600. In late 2023, the IRS announced it would once again push back the higher reporting threshold by another year and phase in the lower requirement.

For the 2023 tax year (for which returns are due on April 15, 2024), the old tax reporting thresholds will apply. You’ll receive Form 1099-K from Venmo, PayPal, and other third-party apps if:

• You have payment transactions for goods and services sold that exceed $20,000 and more than 200 transactions. (Note that the states of Maryland, Massachusetts, Vermont, and Virginia have tax reporting thresholds of $600, while Illinois has a reporting threshold of $1,000 if you’ve had at least four separate business transactions.)

• You’re subject to backup withholding, which the IRS may require if you haven’t provided an accurate tax identification number or you’ve underreported dividend or investment income in the past.

As part of its phased approach, the IRS will implement a lower threshold of $5,000 for payment platforms in 2024, which will apply to tax returns due in 2025.

How to avoid taxes on Venmo

If you’re self-employed and getting paid through Venmo for working, or you’re selling items for a profit, there’s no getting around the fact that you’ll owe taxes on that money. You’ll need to report that income when you file your tax return, even if you don’t receive Form 1099-K. Consult with a tax professional if you have any questions about whether a transaction counts as taxable income.

You can’t avoid the taxes by turning to a different payment app. Other peer-to-peer payment platforms, including PayPal, Stripe, and Square, are subject to the same rules. And you’re responsible for reporting money you earn and paying taxes on it, regardless of how you’re paid — even if you don’t receive a 1099-K.

That said, there are a few situations when you may face a tax bill for a Venmo transaction when you have no tax liability.

Make sure any payments your friends and family send you for gifts or reimbursements aren’t accidentally tagged as “goods and services.” If incorrectly tagged personal transactions exceed the reporting threshold for the year ($5,000 in 2024), you could be issued a Form 1099-K, even though these transactions aren’t taxable. Plus, you’ll pay fees on transactions that should be free. If someone sent you a payment that was inadvertently tagged as “goods and services,” ask them to contact Venmo to correct the mistake.

You can generally avoid paying taxes on Venmo transactions if you sell items for less than you paid. If you sold less than $20,000 worth of items, you shouldn’t receive a 1099-K for 2023, but you’ll receive one for 2024 if your sales exceed $5,000 as the new reporting requirements phase in.

Even if you get a 1099-K, that doesn’t necessarily mean you’ll owe taxes. For example, suppose you paid $30,000 for your car and then sold it on Venmo for $23,000. Even if you received a 1099-K from Venmo, you could report the loss when you file your return and avoid any tax liability. Keeping records of how much you paid for any item you may eventually sell is essential. Check with a tax adviser to make sure you don’t wind up with an unnecessary tax bill.

FAQs

Will Venmo be taxed in 2023?

You’re required to pay taxes on money you earn through Venmo in 2023, as well as other tax years. However, the IRS has delayed the implementation of new Form 1099-K reporting thresholds. Most taxpayers will only receive a 1099-K tax form for 2023 if they received more than $20,000 in Venmo payments for goods and services, as well as at least 200 transactions. But you’re still responsible for reporting Venmo income below these thresholds and paying taxes on that money, even if you don’t receive Form 1099-K.

What is the $600 tax rule?

The $600 tax rule is a new rule that will eventually require third-party payment apps like Venmo, PayPal, and Cash App to submit Form 1099-K for any user who earns more than $600 on the platform during a tax year. The new rule is delayed for 2023, so it won’t affect users during tax season in 2024. A phased-in threshold of $5,000 will apply for the 2024 tax year.

Will I owe taxes if I sold cryptocurrency using Venmo?

You’ll receive a gains and loss statement from Venmo if you sold cryptocurrency using the platform. Regardless of what platform you use to sell crypto, your profits are subject to capital gains taxes. You may be able to offset some of your gains through capital losses. Consult with a tax professional about the rules.