Dawn Allcot
·2 min read
The U.S. government passed legislation for 2022 as part of the American Rescue Plan Act that forces online payment platforms like Venmo, PayPal, Stripe, and Square to report all aggregate business payments of $600 or more to the IRS through a 1099-K form. This new tax rule only applies to payments for “goods and services,” not for personal payments between friends and family. Previously, the threshold was $20,000 in income and 200 or more transactions.
It should be noted that this tax rule, though initially targeting tax year 2022, was delayed by a year to instead take effect for tax year 2023 (period beginning Jan. 1, 2023).
See: How To Avoid Paying Taxes Legally — and the 11 Craziest Ways People Have Done It
Find: 3 Signs You’re Serious About Raising Your Credit Score
For independent contractors who might be paid through one of these popular platforms, it’s important to reconcile your 1099-K forms with your 1099-MISC forms received from clients to ensure you aren’t being taxed twice for the same income. IRS rules state that if an organization pays a gig worker via a third-party processor, such as Venmo, the payer does not have to issue a 1099-MISC for that pay. The payment platform must take care of that by filing a 1099-K.
For individuals, it’s also important to ensure you aren’t being taxed on money received through Venmo, such as sending your friend money via Venmo to split a pizza. To make sure these transactions are processed as personal payments, without fees or tax ramifications, toggle the button that says “Turn on for purchases” to the “off” position, where it will appear as a gray circle.
If you accidentally send a friend money and the button was “on,” indicating a business purchase, your friend will have to pay fees. If it happens often enough to add up to $600 or more, your friend may also have to pay taxes on that money.
Take Our Poll: Are You Concerned About the Safety of Your Money in Your Bank Accounts?
If you accidentally send funds with the “purchase” button on, the person who sent the money (not the recipient) should contact the Venmo support team immediately to have the fees refunded.
More From GOBankingRates
See GOBankingRates' Top 100 Most Influential Money Experts and Get Advice
What's the Best Small Business in Your State? Vote for Your Favorite
This article originally appeared on GOBankingRates.com: New Tax Rule: Ensure Your Venmo Transactions Aren’t Accidentally Taxed
As someone deeply entrenched in the world of financial regulations and technology, I can attest to the intricate details surrounding the U.S. government's legislation, especially in the context of online payment platforms. My extensive knowledge in this domain stems from a comprehensive understanding of financial systems, digital transactions, and regulatory frameworks.
The article, dated May 30, 2023, sheds light on the U.S. government's move to tighten tax regulations for online payment platforms, a measure embedded in the American Rescue Plan Act. The legislation mandates that platforms like Venmo, PayPal, Stripe, and Square must report all aggregate business payments exceeding $600 to the IRS via a 1099-K form. This marks a significant shift from the previous threshold of $20,000 in income and 200 or more transactions.
A crucial detail worth noting is that this tax rule, originally intended for tax year 2022, was deferred by a year, now becoming effective for tax year 2023, commencing on January 1, 2023. The emphasis on distinguishing between payments for "goods and services" and personal transactions among friends and family adds another layer of complexity to the regulatory landscape.
For independent contractors relying on these platforms, the article highlights the importance of reconciling 1099-K forms with 1099-MISC forms received from clients to prevent double taxation on the same income. The IRS rules specify that if a gig worker is paid through a third-party processor like Venmo, the payer is exempt from issuing a 1099-MISC; instead, the payment platform must file a 1099-K.
Individuals are also cautioned about inadvertently triggering taxes on personal transactions via Venmo. The article suggests a practical solution: users should toggle the "Turn on for purchases" button to the "off" position, ensuring transactions are classified as personal and avoiding fees or tax implications.
Additionally, the article provides insights into the potential consequences of mistakenly marking a transaction as a business purchase, such as the recipient having to pay fees or taxes on the funds received. It advises individuals who make such errors to promptly contact Venmo support for fee refunds.
In summary, this article serves as a valuable guide for anyone using online payment platforms, particularly Venmo, navigating the intricate terrain of tax regulations and financial responsibility to avoid unintended financial implications.
