Does Venmo Report to the IRS?

Yes, Venmo reports to the IRS. If you receive at least $600 in a calendar year for goods or services through Venmo, the company will send you Form 1099-K and report this to the IRS. Non-business transactions such as reimbursements or shared expenses are not reported. Failure to report Venmo income can result in penalties.

What Are the Tax Implications of Using Venmo?

Any payment received for goods or services through Venmo is counted as taxable income. If you have received at least $600 in a calendar year, Form 1099-K will be sent to you at the start of the tax computing season. Previously, the income reporting threshold was as follows:

  • Gross payment of more than $20,000 in a calendar year.
  • More than 200 separate payments received in a calendar year.

Since 2023, the threshold has been lowered to $600, regardless of the number of transactions. If you meet the income threshold, Venmo will collect your tax information to prepare Form 1099-K. The form will be sent to you and the IRS. 

Even in the absence of the form, it’s your responsibility to report any income earned as a part of your work and pay applicable taxes. After all, your tax responsibilities do not change in the absence of the tax reporting form.

When Do You Need to Report Venmo Transactions on Your Taxes?

If you have a business profile with Venmo, all payments received through their platform are treated as business transactions. The transactions must be reported for taxation in the year they occurred. Mostly, the tax year aligns with the calendar year. However, businesses can opt for different fiscal years. 

The deadline for federal tax returns is usually the 15th of the following year. So, the 2023 tax year deadline would be April 15, 2024. To minimize the burden of paying a lump sum amount at once, one can make periodic payments throughout the year, typically on April 15, June 15, September 15, and January 15.  

How to Keep Track of Your Venmo Transactions for Tax Purposes

Venmo sends tax documents (Form 1099-K) to qualifying businesses that utilize their platform. The form provides a summary of all the transactions done in a calendar year. Basically, it shows the total amount received by business profile holders in a calendar year. So, the form serves as a reliable transaction record for tax purposes. 

One can also use certain digital apps to enhance the record-keeping process. A few accounting software syncs with your Venmo account, making it easy to track your transactions efficiently. It’s also important to periodically review your Venmo dealings to see if everything is properly categorized and documented.

What Happens If You Don’t Report Income from Venmo on Your Taxes?

Failure to report your Venmo income to the IRS can result in fines, penalties, and damaged credit scores. It’s also going to increase the chances of IRS auditing. Tax offenders may have to deal with legal consequences as well. Besides fines, a convicted person may face jail time for serious tax offenses. So, there’s a lot to lose. 

If you discover that you have made an error while filing your previous tax return, you can avoid trouble by filing an amended return. Such situations can be best resolved by taking prompt action. The IRS will view amended tax corrections favorably because of your proactiveness in resolving the discrepancy.  

Can the IRS Audit Your Venmo Transactions?

The IRS has the authority to commence an audit if they suspect discrepancies or unreported income linked to your Venmo transactions. If your Venmo transactions are audited, you must promptly provide all the requested documents. To minimize the risk of an audit, you must report your Venmo transactions honestly and accurately.

What Are Some Tips for Using Venmo Responsibly and Avoiding Tax Issues?

Maintain Separate Accounts 

For financial record-keeping, have separate accounts on Venmo for personal and business purposes. Maintaining separate accounts will help you to precisely monitor and document your earnings and expenditures for tax-related purposes.

Maintain Proper Records

Meticulous record-keeping is a must to keep tax issues at bay. When making or receiving payments through Venmo, always describe each transaction clearly. You can also save the payment confirmation emails received for each transaction.

Make Estimated Tax Payments

To meet your tax obligations without any hiccups, have a proactive approach towards tax payment. Instead of making one lump sum payment, you can keep making tax payments periodically throughout the year. Adopting this method will save you a lot of financial stress at the end of the year.

Use the Correct Tax Forms

When reporting your Venmo transactions to the IRS, use the correct tax forms because failure to do so can result in sanctions and monetary penalties. You can consult a tax professional for extended help on tax filing. A true professional might help you with future tax strategies as well.

Understanding the New IRS Rules for Digital Payment Apps Like Venmo

The tax rules remain the same for individuals utilizing Venmo or any other similar digital payment platform for personal transactions. That said, the tax reporting threshold for business income has been lowered from $20,000 to just $600 to mitigate the risk of tax evasion.

If you earn $600 or more through Venmo without supplying your tax information, Venmo will withhold 24% of each payment towards tax purposes. Keep in mind that Venmo is not holding your money for its own benefit. As per the new IRS rules, Venmo has been instructed to implement backup withholding. 

The amount withheld by the payment platform will be remitted to the IRS. The backup withholding allows the IRS to collect a portion of the tax money upfront, preventing the risk of tax evasion in the process. The prospect of having a good chunk of the business earnings being held back encourages businesses to furnish their tax information promptly.