Cecily Zamora
The IRS has been gradually phasing in new 1099-K reporting requirements for payments from third-party processors like Venmo and Paypal. In 2021, Congress changed the reporting threshold from over $20,000 in payments and more than 200 transactions to over $600 in payments. However, the IRS applied the previous reporting threshold for the 2022 and 2023 tax years. For the 2024 tax year, the IRS is using a $5,000 threshold, regardless of the number of transactions. From 2025 onwards, the threshold will revert to $20,000 in payments and more than 200 transactions.
| Characteristics | Values |
|---|---|
| Tax Law Start Date | 2025 |
| Tax Law Name | One Big Beautiful Bill |
| Applicable Platforms | Venmo, PayPal, Stripe, and other P2P platforms |
| Tax Form | 1099-K |
| Tax Authority | IRS |
| Applicable Transactions | Payments for goods and services |
| Excluded Transactions | Friends and family payments |
| Reporting Threshold | $5,000 for 2024 |
| Backup Withholding Rate | 24% |
| Tax Documents Availability | Electronically or by mail |
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What You'll Learn
The $5,000 threshold for 2024
The IRS had initially planned to implement a $600 reporting threshold for third-party settlement organisations, including payment apps, for the 2023 tax year. However, due to feedback from taxpayers, tax professionals, and payment processors, the IRS delayed the implementation of this lower threshold and instead announced a transitional threshold of $5,000 for the 2024 tax year. This phased-in approach aims to reduce taxpayer confusion and allow the IRS to review its operational processes.
According to the IRS, the $5,000 threshold for 2024 means that payment apps like Venmo will be required to report payment transactions for goods and services sold that exceed this amount, regardless of the number of transactions. This applies to individuals using these apps to collect payments for goods and services, such as those with side hustles or small businesses. It is important to note that this threshold only triggers a reporting requirement and does not change the tax law regarding taxable income. All income, regardless of the amount, is still taxable unless specifically excluded by law.
When a user reaches the $5,000 threshold on Venmo, the company will collect their tax information, such as a Social Security number or tax identification number, to prepare a Form 1099-K. This form is used to report payments for goods and services transactions to the IRS. If a user does not provide the requested tax details, Venmo is required by law to perform "backup withholding." This means that Venmo will withhold a portion of the user's income (currently 24%) and send it to the IRS to ensure tax compliance. However, users can avoid backup withholding by providing their tax information promptly.
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Backup withholding
For the 2024 tax year, the IRS reporting threshold for payments received for sales of goods and services is $5,000. If you exceed this threshold, you will need to provide Venmo with your tax information. To avoid possible tax holds and backup withholding on your received payments, you can provide your tax information in the Venmo app. This does not apply to payments between friends and family.
Venmo will place your payments on hold for an initial grace period once you meet the reporting threshold by receiving payments for goods and services. After this grace period, they will start sending 24% of your payments to the IRS for backup withholding. This is done monthly, so you may see future payments on hold if you do not provide your tax ID by the next backup withholding date.
If you have had backup withholding applied during the year, you can claim a credit or refund when filing your tax returns with the IRS.
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$32.45
Tax ID and grace period
Venmo requires users to provide their tax ID to remain compliant with tax laws. This is because Venmo is required by law to report payment activity and provide tax documents in certain situations.
Venmo will place your payments on hold for an initial grace period once you meet the reporting threshold by receiving payments for goods and services. This grace period gives you time to add your tax ID. After this initial grace period, Venmo will be obligated to start sending 24% of your payments to the IRS for backup withholding. This is because, without your tax ID, Venmo is required to send 24% of each payment you receive for goods and services to the IRS as backup withholding to cover any potential income tax due.
You can provide your tax ID in the Venmo app by following the prompt from your Notifications page or by looking for Identity Verification under your Settings menu. You can also access your "Payment details" page, which will have a button to "Provide tax info".
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Tax advice and professionals
Venmo itself is not a source of tax advice, and users are encouraged to consult a tax professional for questions about their specific tax situation. However, Venmo does provide some general information about tax reporting requirements and how to avoid tax holds and backup withholding.
Venmo is required by law to report payment activity and provide tax documents in certain situations. For the 2024 tax year, the IRS reporting threshold for payments received for sales of goods and services is $5,000. This means that if a user receives more than $5,000 in payments for goods and services through Venmo, Venmo will be required to report that payment activity to the IRS. It's important to note that this threshold may vary by state, with some states having lower reporting thresholds.
To avoid possible tax holds and backup withholding on received payments, users can provide their tax information in the Venmo app. This includes information such as a Social Security number or tax identification number. By providing tax information early, users can also avoid having Venmo withhold 24% of their payments and send it to the IRS for backup withholding. If a user does not provide their tax information before reaching the reporting threshold, Venmo is required by law to do backup withholding.
Users who qualify to receive tax documents from Venmo can choose to receive them electronically or by physical mail. 1099-Ks are typically made available for qualifying users around January 31st, while Gains/Losses statements are usually available around February 15th. If a user does not receive notifications from Venmo about downloading their tax documents or is unable to locate them, it's likely that their previous year's Venmo activity did not reach the reportable thresholds. In this case, users can download their Venmo account statements to help with any other reporting obligations they may have.
For specific questions about tax reporting and compliance, users should consult a tax professional or seek the advice of a licensed tax advisor. TurboTax, for example, offers audit support and one-on-one question-and-answer support with a tax professional for audited individual or business returns filed with TurboTax for the 2024 tax year.
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Cryptocurrency and tax statements
The IRS treats cryptocurrency as "property" for tax purposes. This means that if you buy, sell, exchange, or dispose of cryptocurrency, you may be liable to pay taxes on any gains you make. This also applies to other digital assets such as non-fungible tokens (NFTs).
If you receive cryptocurrency as a reward, award, or payment for property or services, you must report this on your tax return. You must also report any new cryptocurrency resulting from mining, staking, or similar activities, as well as any cryptocurrency resulting from a hard fork. If you dispose of cryptocurrency in exchange for property or services, or trade it for another cryptocurrency, this is also a taxable event.
To report capital gains or losses from cryptocurrency transactions, you will generally use Form 1040 Schedule D as your crypto tax form, and Form 8949 if necessary. If you received cryptocurrency as income for activities such as staking or mining, or if you were paid as a freelancer, independent contractor, or gig worker, you may need to file Schedule C.
It is important to keep track of all your cryptocurrency transactions, including the date, cost, and sale price, to accurately determine your tax liability. You can usually find this information on a Form 1099-B provided by your trading platform.
If you are unsure about your specific tax situation, it is recommended to consult a tax professional.
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Frequently asked questions
The IRS has been gradually phasing in new 1099-K reporting requirements for payments from third-party processors like Venmo. In 2021, Congress changed the reporting threshold from over $20,000 in payments and more than 200 transactions to over $600 in payments. However, the IRS applied the previous threshold for the 2022 and 2023 tax years.
For the 2024 tax year, the IRS is using a $5,000 threshold, regardless of the number of transactions.
If you don't provide your tax ID, Venmo is required by law to do what's called "backup withholding" on your behalf. This involves Venmo sending 24% of your payments to the IRS.
Form 1099-K is a tax form used to report payments for goods and services transactions. Organisations that facilitate these payments, like Venmo, are required by law to file them with the IRS and send copies to the payment recipient.
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