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How to File Your Venmo Taxes

Filing Venmo Taxes: How to Avoid Potential Pitfalls
Accounting and TaxesFebruary 12, 2024

Founded in 2009, Venmo is one of the most widely used payment platforms in the United States. It gained popularity for its intuitive peer-to-peer features that let friends send money to each other instantly and for free.

In 2020, Venmo expanded its services to cater to businesses, officially letting self-employed people collect payments on the platform. However, as convenient as that is for Venmo users, it could significantly affect your taxes.

Whether you use the platform to complete personal or business transactions, this Venmo tax guide will explain what those activities mean for your tax return and how to stay on top of your responsibilities.

When Is Venmo Income Taxable?

There are two general types of activities on Venmo. First, there are personal ones, which involve the transfer of funds between friends, family, and acquaintances for various day-to-day reasons.

For example, that would include:

  • Paying your roommate for half of the monthly rent

  • Sending your significant other some cash to get you both a cup of coffee

  • Collecting money from your friend for a shared dinner charged to your credit card

Personal Venmo transactions like these aren’t taxable. Whether you’re the sender or the recipient, you don’t have to worry about tracking or reporting them on your taxes. The funds transferred aren’t income for either party.

The only exception is when you collect payment for the sale of a personal item, such as a jacket or a cell phone. If you sell it for more than it cost you, you'd have a taxable gain. However, that’s uncommon since most things lose value with use and age.

Second, there are business activities. That refers to any transaction in which one party pays another in exchange for goods or services. For example, that would include:

  • Billing a tutoring student for your latest session

  • Buying a burrito from your favorite local food truck

  • Charging a client for a piece of art they commissioned from you

Generally, these types of transactions constitute taxable business income for the party receiving the money. No matter how small the amount, you must report it on your annual tax return.

Venmo Business Taxes

If you use a Venmo account to collect payments for goods or services, the Internal Revenue Service (IRS) considers it business income. It will also classify you as self-employed, even if you have a full-time job.

As a result, any profit you generate through your business activities on Venmo will be subject to ordinary income and self-employment taxes.

At the federal level, ordinary income taxes are progressive. That means the tax rate on the next dollar you earn increases as you make more money. For tax year 2023, rates start at 10% and go up to 37%. Most states have income taxes as well, but rates vary.

Meanwhile, the self-employment tax is a flat 15.3%. It represents the combination of a 12.4% Social Security and 2.9% Medicare tax. Employees split these taxes with their employers, but self-employed people must cover it themselves.

Venmo Tax Documents

If you collect taxable income through Venmo, you must keep track of the amount and report it on your tax return. Unfortunately, that can be more difficult on a payment platform like Venmo than a dedicated gig app like Turo or DoorDash.

That’s because everything you do on a gig app is for business, but many people use one Venmo account for personal and business transactions. That can make it hard to determine what transactions are which, especially long after the fact.

In addition, Venmo doesn’t make it as easy as other platforms to filter through your previous activities, especially on the mobile app. Your best option is to consult your monthly Venmo statements on the website. 

They’re like the monthly statements for your bank account or credit card, and you can review the details of individual transactions there. Since Venmo forces you to leave a description for each, that should help you find your business activities.

If you meet certain IRS thresholds, you’ll also receive a Form 1099-K stating your gross annual receipts. However, Venmo only knows to include transactions tagged as a sale of goods or services during checkout or received via business accounts. If you’re using a personal Venmo account to make business transactions, you’ll have to sift through those.

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Venmo Bookkeeping Tips

Good bookkeeping is essential no matter what you use to complete business transactions, but especially with Venmo. Fortunately, a little preparation can make things much easier for you.

If you plan to use the platform for business consistently, set up a separate Venmo business profile. Not only will that split your personal and business transactions, but business accounts also offer several benefits. For example, that includes:

  • Higher bank transfer limits: Personal Venmo accounts limit your withdrawals to $5,000 each, with a total weekly cap of $20,000. Meanwhile, business profiles let you withdraw up to $50,000 per week, with a $10,000 limit only on transfers to debit cards. If you have two accounts, these limits apply separately.

  • Additional payment management features: With a business profile, you can complete refunds from the app, give customers the option to tip, and accept contactless payment methods like credit cards and digital wallets in person.

  • Increased marketing opportunities: You can link to your company's website or social media and display in-app photos of your products or services from your payment page. Your business will also be more visible in the Venmo feed.

To fully separate your activities, it’s best to pair your merchant profile with a business bank account. Found, our all-in-one banking solution, is a great option, complete with invoicing features, bookkeeping assistance, and tax tools.

However, all that may be overkill if you only rarely use Venmo for business. For example, say you have a small side hustle as an artist and bill only a few clients each year. In these cases, you can generally get away with one Venmo account.

Just have your customers tag each business transaction as payment for goods or services. That’ll make it easy for you to identify them, and Venmo will know to include them in your 1099-K.

You'll incur a small fee, but that's also true with Venmo for business accounts, and it's against Venmo's terms to collect business payments without tagging them or using a business profile.

Will Venmo Send You a 1099?

As mentioned above, Form 1099-K is an official tax document that reports your gross annual income. If you have enough business activity on a payment platform like Venmo, it must send a completed copy to you and the IRS.

You'll get one for 2023 if you have at least $20,000 in business receipts and completed at least 200 transactions during the tax year. Venmo must email you and make the document available for download through the Venmo app by January 31.

Remember, these activity thresholds only include the payments you receive in exchange for goods and services. Venmo should not send out 1099-K forms for personal activities.

If you receive a 1099-K that mistakenly includes personal payments, request a change from the Tax Documents page on the website. You don’t want the IRS to come after you for taxes on that money.

Heads up: Make sure you confirm your tax ID number with the platform before you reach those activity thresholds! Otherwise, Venmo will be required to withhold a portion of your business earnings.

Self-employed people aren’t subject to tax withholding, but payment platforms must perform “backup withholding” in that scenario. That means taking 24% of your payments for goods or services and sending the funds to the IRS to cover your income taxes.

1099-K Threshold Changes

The requirements for 1099-K forms were high for 2023, but that’s changing soon. The IRS has long wanted to reduce the threshold to just $600 in gross receipts but delayed the change several times due to widespread pushback.

To make the transition easier for everyone involved, the agency is making 2024 a transitional period, with a reporting threshold of just $5,000 in gross receipts. However, the $600 threshold will take effect in 2025.

How to Avoid Venmo Taxes

Whether or not you receive a Venmo 1099, any business income you earn on the platform is taxable. The only legal way to avoid Venmo taxes is by claiming allowable tax deductions on your return.

Tax deductions, commonly referred to as write-offs, are business expenses that the IRS lets you subtract from your business income. That reduces your net taxable earnings, indirectly lowering your tax bill.

For example, say you collect $5,000 through Venmo selling homemade jewelry. During the same year, you had $2,000 in tax deductions. That would reduce your net business income to $3,000. Only $3,000 would be subject to taxes.

To be tax-deductible, expenses must be “ordinary and necessary” for your business. In other words, the IRS requires that write-offs be common for companies like yours and reasonably beneficial. 

Since you can use Venmo to collect payment for any business, there are no Venmo-specific tax deductions except for the fees the platform charges. However, some examples of typical deductions for freelancers include:

  • Office supplies

  • Office rent and utilities

  • Home office expenses

  • Marketing and advertising

  • Vehicle expenses for business

  • Business portion of phone and internet

  • Professional services and contract labor

  • Raw materials necessary to build a product

If you aren't sure what qualifies as a tax deduction for your business or how to claim them, consider hiring a Certified Public Accountant for assistance. Not only will they be able to guide you, but any fees you pay them are tax-deductible.

Get so much more for free

Found is the ultimate business bank account, with built-in bookkeeping and tax tools.
Get started

Make Quarterly Estimated Tax Payments

If you expect to owe $1,000 or more in taxes for a given year, you must make quarterly estimated tax payments. Tax agencies require this to make up for the fact that the self-employed generally aren’t subject to tax withholding.

To avoid penalties, pay 25% of the amount you expect to owe for the year by each of the following days:

  • 1st Payment: Due April 15, for income earned from January 1 to March 31.

  • 2nd Payment: Due June 15, for income earned from April 1 to May 31.

  • 3rd Payment: Due September 15, for income earned from June 1 to August 31.

  • 4th Payment: Due January 15 of the following year, for income earned from September 1 to December 31.

If you file your tax return and pay the taxes you owe by January 31, you don’t have to make the fourth payment by January 15.

Another critical rule is the safe harbor threshold. It states that you can avoid underpayment penalties if your estimated tax payments equal 90% of the taxes you owe for the current year or 100% of what you owed the previous year.

How to File Venmo Taxes

Assuming you’re a sole proprietor, the default legal entity structure for the self-employed, report your Venmo business income on Schedule C and complete its supporting forms, like Schedules 1, 2, and SE.

File these with Form 1040, the official name for the individual tax return, by April 15. You can also file an extension for an extra six months, pushing the due date to October 15. However, that doesn’t affect your payment deadlines, only your filing due date.

Generally, the easiest option is to let your CPA handle the process. As long as you set up effective bookkeeping systems ahead of time, they’ll be able to fill out and submit your tax return with minimal help from you. And don’t forget, the cost is tax-deductible!

Combine Venmo With Found

Venmo is a convenient way to transfer money back and forth between personal connections, but its business features aren’t the most robust. It can be tough to track your activities, especially if you use one account for personal and business dealings.

One of the best ways to enhance your bookkeeping systems is to sign up for Found, a business bank account built to streamline self-employment processes. For example, Found can automate otherwise tedious responsibilities like:

  • Tracking your business income and expenses

  • Setting aside the right amounts for estimated tax payments

  • Sharing your financial records with a tax professional

Best of all, you can get started for free! Sign up for Found today and let its powerful features take care of the paperwork so you can focus on growing your business.

FAQ

Do You Have to Pay Taxes on Venmo?

Generally, any payment you collect through Venmo in exchange for goods or services is considered business income. As a result, it’s subject to ordinary income and self-employment taxes, though you can reduce the amount with business deductions.

Does Venmo Report to the IRS for Personal Use?

Venmo should not report your personal activities to the IRS. Payment platforms like Venmo only report payments you receive in exchange for goods or services. If they report personal payments by mistake, request an update via the Venmo website.

Will Venmo Send Me a 1099?

Venmo will send you a 1099-K form if your activities on the platform meet certain requirements. For tax year 2023, that means collecting $20,000 in business payments and completing 200 transactions.

In tax year 2024, you'll only need $5,000 in business receipts, and the threshold is just $600 in gross business income starting in 2025.

When Does Venmo Tax You?

Though business income collected through Venmo is taxable, Venmo generally won’t take the funds from you. The only exception is when you fail to provide your tax ID number before meeting 1099-K reporting thresholds.

If that happens, Venmo must follow backup withholding requirements. That means the platform will take 24% of all your business payments and send the funds to the IRS to cover your taxes.

Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.

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