Venmo, Zelle and Cash App: Do they report to the IRS?

New tax rules related to third-party payment networks

Previously, the IRS required that these platforms send 1099-Ks only if total goods and services payments exceeded $20,000 or 200 transactions in a given year. However, the American Rescue Plan Act of 2021 changed these reporting thresholds.

In Maryland, Massachusetts, Vermont and Virginia, the $20,000 reporting threshold decreased to $600 in tax year 2022 and remains the same for tax year 2023. (For Illinois residents, the reporting threshold decreased to $1,000 and four transactions for the above tax years.) That means, if you live in one of those states and your 2023 goods and services earnings through a payment platform exceed those amounts, you’ll likely receive a 1099-K detailing total payments.

Implementation was initially delayed a year in other states, with the payment threshold set to decrease to $600 in all U.S. states for the 2023 tax year. However, in November 2023, the IRS modified its timeline after feedback from taxpayers. For the states not mentioned above, the reporting threshold is still over $20,000 or more than 200 transactions for tax year 2023, but it will decrease to $5,000 for tax year 2024.

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When do I report Venmo, Zelle and Cash App payments on my tax return?

For the 2023 tax year, you’ll only receive 1099-Ks from Venmo or similar payment apps if your goods and services earnings exceed $20,000. But there’s an important caveat here. Even if you’ve earned less than that through a particular platform, the IRS still requires you to report that amount on your tax return.

So, let’s say you accept $450 in goods and services payments through Venmo. While you won’t receive a 1099-K from Venmo, you’ll still need to include the $450 as earned income on Schedule C (1040) when you file your taxes. Not reporting earned income to the IRS could result in some unfortunate consequences, including audits and tax penalties.

While Zelle works similarly to Venmo, Zelle’s payment network is structured differently and isn’t subject to IRS 1099-K reporting requirements. Unlike Venmo and other payment processors where you can hold a balance in the app, Zelle facilitates bank transfers and you can’t retain a balance on its platform. Of course, just because Zelle won’t be sending you a 1099-K doesn’t mean business payments you receive through that platform aren’t reportable to the IRS. (More on this shortly.)

What payments do I not need to report on my tax returns?

Chances are you’ve probably used Venmo, Zelle or Cash App to split a bill at a restaurant or pay a friend or family member for another expense.

Fortunately, the new tax rules don’t apply to personal payments made through third-party processors, so you can continue to divvy up restaurant expenses and accept payments from family and friends without worrying about unexpected Venmo taxes. This is true even if total personal payments exceed the IRS reporting thresholds.

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How do I avoid paying tax on money from cash apps?

But there’s one important thing to note: To avoid a Venmo tax, ensure your personal payments are classified properly through its platform. If payments from family members or friends are accidentally being made as goods and services payments, for example, you could end up with an unexpected 1099-K and run into problems at tax time.

The best way to avoid this unfortunate scenario is to separate your personal and business payments on these platforms. Consider creating one personal account and one business account to keep things organized.

While you won’t be taxed on personal payments, provided they’re classified as such, there’s no way to avoid taxes on business payments you’ve received through third-party payment processors, Zelle included. Per IRS rules, you must include those earnings as part of your total taxable income. The same goes for any business earnings you receive through bank transfers, checks, cash or other means of payment. If you have questions about taxes on your earnings, consider speaking with a tax professional for guidance.

What’s a Form 1099-K?

A ‘1099-K, Payment Card and Third Party Network Transactions’ form, or 1099-K for short, is a tax form used to report business earnings paid through third-party payment platforms or via credit or debit cards. Companies like Venmo, Cash App, Etsy and PayPal are required to send these forms to the IRS when goods and services payments to an individual exceed thresholds set by the IRS in a given tax year.

You should receive a copy of any 1099-K forms third-party payment platforms send to the IRS on your behalf, and you’ll need to report payment amounts on your taxesYou may not receive a 1099-K for the 2023 tax year if your total business payments through a third-party payment network don’t exceed $20,000, provided you don’t live in a state with a lower threshold. But if your payments cross that threshold and you still don’t receive a 1099-K from a particular network, it’s best to contact that company for further guidance.

Also, be aware that some companies may send these forms digitally, so if you don’t receive a paper form in the mail, check your payment network account or your email for notifications. Per the IRS, these forms are generally distributed by January 31 for payments received in the prior year, so you should, in theory, receive all your 1099-Ks by early-to-mid February. .

What to do if I don’t receive a 1099-K?

You may not receive a 1099-K for the 2023 tax year if your total business payments through a third-party payment network don’t exceed $20,000, provided you don’t live in a state with a lower threshold. But if your payments cross that threshold and you still don’t receive a 1099-K from a particular network, it’s best to contact that company for further guidance. Also, be aware that some companies may send these forms digitally, so if you don’t receive a paper form in the mail, check your payment network account or your email for notifications.

Per the IRS, these forms are generally distributed by January 31 for payments received in the prior year, so you should, in theory, receive all your 1099-Ks by early-to-mid February.

What happens after I provide my tax info?

As part of the recent reporting changes, third-party payment platforms may request that you confirm your name and contact information and provide your Social Security number (SSN) or Individual Tax Identification Number (ITIN).

Confirming this information is correct will help ensure you receive an accurate tax form and avoid any unexpected issues with future payments or backup tax withholdings. Basically, it’ll make things easier for you, the payment processor issuing the 1099-K and the IRS.

What if I don’t provide my tax info?

If you don’t provide your tax information to the processing platforms through which you receive payments, there could be some unfortunate consequences, including backup tax withholdings for future payments.

For instance, Venmo issues tax holds and 24% backup tax withholdings on goods and services payments if you’ve exceeded earning thresholds set by the IRS and haven’t yet provided your tax information. The 24% withholding goes directly to the IRS and helps ensure you’re paying them any income taxes you owe.

Sharing your tax information proactively can help you avoid this hassle and stay on the IRS’s good side.

Bottom line

If you’re self-employed or have a side hustle, you can probably expect more tax forms next year. Or you may have already received multiple 1099-Ks if you received more than $600 through a particular platform and live in Maryland, Massachusetts, Vermont or Virginia.

Despite the extra forms, tax filing may actually be simpler because the 1099-Ks will offer a clear picture of your actual goods and services earnings. You won’t need to worry about poring over your accounting software or tracking spreadsheets to add up your payments. To simplify things at tax time, consider getting help from a reputable tax software or financial professional.