Note: The IRS has delayed the implementation of the $600 reporting threshold for payment transactions for goods and services by one year. For the tax year 2022, the IRS will continue to use the reporting threshold of total payments exceeding $20,000 for goods and services and more than 200 transactions. Some states have lower reporting thresholds. Read on for more information.
1. What are the new tax laws?
This requirement only pertains to payments received for sales of goods and services and DOES NOT apply to friends and family payments.
For the tax year 2022, the IRS will require reporting of payment transactions for goods and services sold that exceed $20,000 and 200 transactions. Some states have lower reporting thresholds:
-
Maryland (MD): ≥ $600
-
Massachusetts (MA): ≥ $600
-
Vermont (VT): ≥ $600
-
Virginia (VA): ≥ $600
Anyone who met the $20,000 and 200 transactions reporting threshold (or the $600 threshold in applicable states) for payments received for goods and services through Venmo, or any other payment app, can expect to receive a Form 1099-K. While Venmo is required to send this form to qualifying users, it’s worth noting that certain amounts included on the form (like refunds) may not be subject to income tax.
- To determine whether specific amounts on your 1099-K are classified as taxable income, you should speak with a tax professional. This information is not intended to be and should not be construed as tax advice.
For the tax year 2023, the IRS will use a lower threshold of at least $600.
If you collect $600 or more for the sales of goods and services through a payment services company without first providing your tax info, that payment services company (i.e. Venmo) is required to withhold 24% of those payments and send it to the IRS for backup withholding. This is required by the IRS and helps to ensure that any applicable taxes due on these payments are paid.
- Venmo will begin sending backup withholding to the IRS as soon as June of 2023
Remember: You can provide your tax ID in the Venmo app to avoid backup withholding on your payments.
2. I’ve sold lots of stuff in the past. Why haven’t I had to do this before?
The IRS has always required payment settlement entities (PSE) like Venmo to report information and issue Form 1099-Ks.
The IRS initially planned to lower the reporting threshold to $600 for the 2022 calendar year but has delayed that implementation by one year, to 2023. Instead, the IRS will use the same higher threshold from years past (total payments exceeding $20,000 and more than 200 transactions) for 2022. Some states have lower reporting thresholds.
3. What makes a payment goods and services?
When sending money on Venmo, users can choose to tag a payment as being for “goods and services”.
Whether it’s for a product you sell, a service you provide, or even an old couch you don’t want anymore, the person paying for the item or service can decide whether to tag the payment. All payments sent to business profiles on Venmo are tagged as purchases automatically and are therefore considered to be for goods and services.
This helps create a safer marketplace by making both the buyer and the seller eligible for Purchase Protection if something goes wrong on either side.
Learn more about what makes payments reportable by watching this short video:
4. What happens after I provide my tax info?
If you sell at least $600 in goods or services on Venmo during the calendar year, we’ll issue you a Form 1099-K at the beginning of the following tax season and send a copy to the IRS. By providing your tax info, you can avoid experiencing payment holds and subsequent backup withholding. This step also enables us to provide accurate information on your tax forms.
If you don’t end up selling $600, you can download your Venmo account statements to help you with any other reporting obligations you may have. You may also wish to seek the advice of a licensed tax advisor.
5. What if I don’t provide my tax info?
If you reach the $600 reporting threshold and haven’t provided your tax info, you’ll continue to experience tax holds and 24% backup withholding on the payments you collect for goods and services throughout the year. If you do nothing, we’ll still be required to send you and the IRS a Form 1099-K.
Remember: You can provide your tax ID in the Venmo app to avoid backup withholding on your payments.
Learn more about tax holds and backup withholding by watching this short video:
6. What is backup withholding?
Backup withholding is when a portion of your payments is sent to the IRS to ensure that any tax due on those payments is paid. Without your tax ID, we’re required to send 24% of each payment you receive for goods & services to the IRS as backup withholding to cover any potential income tax due.
7. Can I get my backup withholding money back?
Funds sent to the IRS for backup withholding cannot be returned to you, but you can report the backup withholding on your tax return. For any questions about how this affects your taxes, please consult a licensed tax advisor.
Remember: You can provide your tax ID in the Venmo app to avoid backup withholding on your payments.
8. Why was backup withholding taken from payments I received before reaching the $600 threshold?
If you don’t provide your tax ID prior to your first backup withholding date, Venmo is obligated to send 24% backup withholding to the IRS for all of the payments you received for goods and services for the current tax year. This includes payments you received prior to meeting the $600 reporting threshold.
Please note that any amounts due to the IRS may be withheld from your Venmo account or removed from future payments received.
9. Where does the 24% come from? Is this taken from my payments before taxes and fees or after?
24% is a standard withholding rate set by the IRS. If backup withholding is due on your payments, it will be taken from the gross amount you receive before taxes and fees are applied.
10. Can I pay off my backup withholding another way?
No. We’ll only use funds in your Venmo balance (or held balance) to cover any amounts you owe for backup withholding.
Without your tax ID, we’re required to send 24% of all payments you receive for goods and services to the IRS after you meet the $600 threshold for the current tax year. There isn’t another way for us to send your backup withholding to the IRS.
Remember: You can provide your tax ID in the Venmo app to avoid backup withholding on your payments.
11. What is a backup withholding date?
Backup withholding is sent to the IRS once per month, on a predetermined date. The backup withholding date you see on Venmo is the date when your backup withholding funds will be sent to the IRS.
- Venmo will begin sending backup withholding to the IRS as soon as June of 2023
Remember: You can provide your tax ID in the Venmo app to avoid backup withholding on your payments. If you complete this step prior to the next backup withholding date, we will not send backup withholding to the IRS.
12. Why is my money on hold?
To give you some time to add your tax ID and stay compliant with tax laws, we’ll place your payments on hold for an initial grace period once you receive $600 or more for goods and services through Venmo. After this initial grace period, we’ll be required to start sending 24% of your payments to the IRS for backup withholding.
- Venmo will begin sending backup withholding to the IRS as soon as June of 2023
Because backup withholding is sent to the IRS monthly, you may see future payments on hold if you choose not to provide your tax ID by the next backup withholding date.
Remember: You can provide your tax ID in the Venmo app to avoid backup withholding on your payments.
It’s also possible that your payment is on hold for a different reason. Learn more about payment holds.
13. What’s a Form 1099-K?
Form 1099-K, Payment Card and Third Party Network Transactions, is a tax form used to report payments for goods and services transactions. Organizations that facilitate these payments, like debit/credit card companies, PayPal, Stripe, Venmo, Etsy, Upwork, and many others, are required by law to file them with the IRS and send copies to the payment recipient.
14. What if I just go sell on another payment platform?
All payment settlement entities, including PayPal, Stripe, and Square, have the same IRS obligation.
15. Is Venmo keeping my money?
No, Venmo is not keeping your money. Payments placed on tax hold are in your account, but they're unavailable to you until you provide your tax info or until the next backup withholding date. By providing your tax info, you and Venmo are acting in compliance with the new IRS requirements.
16. Did my buyer complete their payment?
Yes. Held payments have nothing to do with your buyer and you should feel confident about providing them with your goods and/or services. Their payment is waiting for you in your Venmo account. You just can’t access it until you provide your tax info.
We know this stuff is complicated, but we’re doing our best to keep things as easy (and legal) as possible. Learn more about selling on Venmo.
This information is not intended to be and should not be construed as tax advice. You should consult your tax advisor regarding your reporting of these transactions.