December 6th, 2024
The Internal Revenue Service has just issued Notice 2024-85 providing transition relief for third-party settlement organizations (TPSOs), also known as payment apps and online marketplaces, regarding transactions during calendar years 2024 and 2025. Under this guidance, TPSOs will be required to report transactions when the amount of total payments for those transactions is more than $5,000 in 2024; more than $2,500 in 2025; and more than $600 in calendar year 2026 and after.
What is a 1099K?
This form is used to report certain types of payment transactions to the IRS. It is primarily used to track income received for goods and services through TPSOs. It is designed to help the IRS track income received through payment platforms to ensure proper tax reporting.
What to Do If You Receive a 1099-K?
- Verify the Information: Ensure it reflects only payments for goods/services and excludes personal transactions.
- Report the Income: Add taxable amounts to your tax return (e.g., as business income).
- Correct Errors: If the form includes personal transactions, contact the payment platform for correction or explain the non-taxable nature of the income on your tax return
- If you receive a 1099-K for personal transactions that are not taxable, it is important to clarify this on your tax return to avoid being taxed incorrectly. You need to report the amount on the 1099-K, even if it is not taxable income.
- Retain clear records of transaction notes in Venmo or other payment platforms and receipts, memos, or any evidence showing the transactions were personal. This will support your case if the IRS asks for clarification.
How does Venmo separate personal and business transactions?
Venmo transactions identified as personal should not be reported on a 1099-K. Venmo only includes business transactions (payments for goods and services) when calculating whether a user meets the reporting threshold for issuing a 1099-K. Payments categorized as personal, such as splitting bills, gifts, or reimbursements, are not considered taxable income and are excluded from the 1099-K calculation. When making a payment, if you mark it as “for goods and services” (via Venmo’s toggle feature), it will be treated as a business transaction and may contribute to your 1099-K total. Payments sent to business accounts are automatically considered business transactions and reported on a 1099-K if they meet the threshold.
Venmo may use algorithms to flag transactions that appear to involve goods or services, especially if they occur frequently or involve larger amounts.
You should consult your tax advisor to determine how to report Form 1099 K according to your specific circumstances.