Viva la Venmo (2024)

Contextualizing the finance news you need to know.

Venmo has completely revolutionized the way we nickel-and-dime our friends during Dollar Shrimp Night at the karaoke lounge. (Just me? 🍤) Peer-to-peer (P2P) payment platforms like Venmo and PayPal have also revolutionized the way we do business, making it a heck of a lot easier to charge customers for goods and services. And, of course, the IRS has taken notice, implementing a new tax reporting rule for certain transactions. But what does that mean for those of us who use Venmo for non-business purposes?

How does the new rule work?

The IRS is cracking down and has implemented a new $600 reporting threshold for all P2P platforms. That’s right: If you’re taking in more than $600 in business income via Venmo—regardless of the total number of transactions—you’re gonna receive Form 1099-K at the end of the 2023 tax year.

First, it’s important to note that this isn’t the first time the IRS has set a reporting threshold for P2P payments. Through tax year 2022, platforms like Venmo and PayPal were required to report income for folks who received more than 200 payments that exceeded $20,000 in a year.

The good news: If you’re using Venmo to swap money for drinks with friends, that’s not considered taxable income. The P2P payment threshold only applies to business income—like if you’re an artist accepting payment for work via PayPal. Here are a few examples:

What’s not taxable under the new rule?

• Your aunts get together and Venmo you $600 for your birthday (score!).
• You book hotel rooms for a friend getaway, and your friends Venmo you $600 for their share of the booking.
• You split the electric bill with your roomie.

What’s taxable under the new rule?

• You’re a hairdresser getting paid via Venmo.
• You’re a street fair vendor taking payments via Stripe.
• You’re accepting bets for the annual Wiener Dog Race in Batavia Downs, New York (just be careful—running a sportsbook has its own set of tax guidelines).

How does the IRS know what’s taxable?

Here’s the tricky part: If you send someone money on a P2P platform, you generally have the option to categorize the transfer as going toward either “friends or family” or “goods and services” (the terminology varies depending on the app).

But if your friend sends you $50 in margarita funds and accidentally categorizes the payment as “goods and services,” it’s classified as income for the IRS. “Let’s say you’ve received a 1099-K because you received $1,000 from someone who miscategorized the payment,” Eric Bronnenkant, head of tax for financial advisory company Betterment, told Money Scoop. “That shouldn’t mean that you pay taxes on it. But is it going to cause you some friction with the IRS? Probably.” Mmm, we love the smell of IRS friction in the morning!

Is the rule retroactive?

Time for a hard question: What if you’re someone who has used Venmo to, ahem, avoid paying taxes on self-employment income? (We all know one friend who asks their clients to categorize Venmo payments as going to “friends and family” to avoid the tax liability…right?) “The change in the 1099-K rules do not change your tax obligations,” Bronnenkant explained. “So if you had taxable income beforehand from self-employment, even if you didn’t get a tax form, you were still supposed to report that.”

But will the IRS know? It’s possible, per Bronnenkant. “Let’s say someone gets a 1099-K in January 2024,” Bronnenkant said. “And then the IRS is like, ‘Is this a person who—all of a sudden—just made this much money this year?’” Translation: You could be on the hook for past due taxes if the IRS has reason to suspect you’re doing funny business on Venmo. “The IRS has a typical three years of statute of limitations on auditing, which goes up to six years if you omit more than 25% of your income, and then it’s forever if they consider it to be fraudulent,” Bronnenkant said.

Bottom line: The new threshold won’t change much for ordinary Venmo users who rely on the platform to swap dollars between friends. But if you’re a business owner who utilizes P2P platforms, you’ll want to keep your books tight this year.