What is your Venmo?

This has become a standard question in many social and business circles today. Applications like Venmo and its competitors have made day-to-day transactions among family and friends easier and has made it easier for tech savvy folks to be “cash free.” Additionally, it has allowed several businesses to run below the IRS’s radar, ushering in a new era of tax evasion since income is moved from customer to owner without ever touching the ledgers. The current situation is set to change in the next few years as new filing mandates are put into place.  

For tax year 2024, the IRS will begin its long-anticipated implementation of the lower threshold requirement for tax form 1099-K. If this is news to you, let us go over some background information.  

The American Rescue Plan, that was passed in 2021, states that “a third-party settlement organization (TPSO) is required to report payments in settlement of third-party network transactions with respect to any participating payee that exceeds a minimum threshold of $600 in aggregate payments, regardless of the aggregate number of such transactions.” (Notice 2023-74)  

This contrasts sharply with the former threshold of the aggregate amount needing to exceed $20,000 and the volume of transactions exceeding 200. The IRS released a statement in November of 2023 saying that for tax year 2024 there will be a gradual lowering of the threshold to $5,000. This was done to help address taxpayer and stakeholder concerns with the implementation process.  

Common TPSOs include the following:  

• Venmo  
• PayPal
• Cash-App  

You may be asking what the need was to lower the threshold. Justifications range from wanting to increase compliance with existing legislation to raising tax revenues among independent contractors whose main source of revenue is from gig work and who rely heavily on TPSO’s.¹  In addition to those who do gig work, people who host garage sales, sell used textbooks or furniture from college dorms, and any other similar transactions may also need to be reporting these sales under the provisions of the new threshold. Note: there are guidelines in place for asset sales sold at a price below base cost.  

"If taxpayers sold at a loss, which means they paid more for the items than they sold them for, they will be able to zero out the payment on their tax return by reporting both the payment and an offsetting adjustment on a Form 1040, Schedule 1. This will ensure people who unnecessarily get these forms do not have to pay taxes they do not owe” (FS-2023-27)

This may raise concerns for those who use these apps for non-business purposes: example, those who use it to move insignificant amounts of money between family members for groceries, utilities, or reimbursement for lunch or gas. The IRS has made provisions for this and says the following:  

“Reporting is not required for personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.” (FS-2023-27)  

Should you find yourself getting a 1099-K from one of these TPSO’s for personal transactions, the IRS instructs you to contact the issuer of the 1099 and have them correct the error. More information on this and additional information on form 1099-K can be found here. Should you have additional concerns, an expert member of our staff would be happy to answer any questions you may have.  

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