Updated: Delayed to 2023 - PayPal, Venmo issuing 1099-Ks

[The Cosmic Avenger]

I have a "gift" link that gets past the paywall if you want to read the full article, but I've excerpted the pertinent parts below. Basically the reporting requirements have changed, and so more of us using these apps might start getting 1099-Ks that we will have to correct. In non-pandemic years I've purchased whisky or beer festival tickets for 3 or 4 other old friends who later reimbursed me, and often two VIP tickets can total more than $600.

As of 2022, all third-party payment processors in the United States, includingVenmo and Cash App, must report payments of more than $600 a year received for goods and services.
...
This isn’t a new tax, just the IRS trying to catch people who are underreporting gig or self-employment income. Even if you hadn’t previously received a Form 1099-K, you were still required to report any taxable income received through these platforms on your tax return.
Before the reporting change, the app companies were required to submit a 1099-K only for transactions totaling more than 200 a calendar year with gross payments exceeding $20,000. Now a single transaction or multiple payments that exceed $600 can trigger a 1099-K.
...
But — and this is important — money received through these payment apps from friends and relatives as personal gifts or reimbursements for expenses such as splitting a restaurant meal is not taxable.
If, however, there’s a mistake and personal payments get misclassified, the IRS says to sort it out with the app company.
“Those who receive a 1099-K reflecting income they didn’t earn should call the issuer,” the agency said in a year-end tax tip. “The IRS cannot correct it.”

 

[wolf]

This topic was mentioned on a podcast. A little confusing. But if correct. This would be a "nightmare" for a lot of us.

Sounds like, if someone receives, more than $600 a year. One may receive a 1099.
Income on a 1099 is taxable. IRS also receive a "matching" 1099.

If you look into the details, this is really bad. Big Brother coming after us.

 

[The Cosmic Avenger]

This topic was mentioned on a podcast. A little confusing. But if correct. This would be a "nightmare" for a lot of us.

Sounds like, if someone receives, more than $600 a year. One may receive a 1099.
Income on a 1099 is taxable. IRS also receive a "matching" 1099.

If you look into the details, this is really bad. Big Brother coming after us.

Well, we're supposed to pay taxes on any qualifying income. And the third party payment services don't have it set up to prove (to the IRS' satisfaction) what is income and what is a gift. I don't see this as a problem, as long as people know that money sent to them might be classified incorrectly and are prepared to contact the 1099-K issuer to correct it. But if this hit you unawares, it would be annoying, especially if you were trying to finish your tax return early and had to wait for a correction.

 

[COcheesehead]

I am an eBay’r and fully expect a 1099 this year from eBay.

 

[ivinsfan]

Can anyone envision the additional paperwork this will entail for the IRS they can barely handle what they have now and yes it electronic but still paperwork.


Sounds very counterproductive..

 

[qwerty3656]

How is paypal/venmo different than writing a check? If I write my plumber a check, my bank doesn't send them a 1099

 

[COcheesehead]

How is paypal/venmo different than writing a check? If I write my plumber a check, my bank doesn't send them a 1099

You have it backwards.

 

[Chris7]

I use PayPal and Venmo for reimbursements. I buy lunch and everyone sends me their portion. It isn't income. This is stupid.



We prepaid expenses for a High School event. >$5000. I was reimbursed partially through Venmo. So now, I'm going to have to tell Venmo that was a reimbursement?


cd : O)

 

[gauss]

I use PayPal and Venmo for reimbursements. I buy lunch and everyone sends me their portion. It isn't income. This is stupid.



We prepaid expenses for a High School event. >$5000. I was reimbursed partially through Venmo. So now, I'm going to have to tell Venmo that was a reimbursement?


cd : O)

Correct. This is not taxable income, so you won't be paying tax on it if your return is prepared properly.

As you allude to, however, the question is does this need to be managed on the Venmo side of things (ie having it configured correctly), or will it be handled on your 1040. Not sure to the answer on this quite yet.

-gauss

 

[Chris7]

Do you think I will have to have Venmo correct it if issued, or explain it away on my tax filings? Seems like it is going to waste a whole lot of people's time and not really accomplish gaining additional tax revenue.


cd : O)

 

[qwerty3656]

You have it backwards.

Not sure what you mean? It is income to my Plumber, but it's not the banks job (or my job) to tell the IRS about it - it is the Plumber's job to report it

 

[rothlev]

Well, we're supposed to pay taxes on any qualifying income. And the third party payment services don't have it set up to prove (to the IRS' satisfaction) what is income and what is a gift. I don't see this as a problem, as long as people know that money sent to them might be classified incorrectly and are prepared to contact the 1099-K issuer to correct it. But if this hit you unawares, it would be annoying, especially if you were trying to finish your tax return early and had to wait for a correction.

I work for HR BLOCK. In our training this was addressed. Our software, and I would think all software, will have a way under the k-1 as it it entered to adjust out the part that a is taxable from the part that is not taxable. ( much like additional information can be added on a 1099r or adjustments made on schedule D ). I have not done this in practice mode yet. My advise to anyone receiving a non taxable 1099 k is to carefully study the software for the adjustment screens.

 

[The Cosmic Avenger]

Actually, that's why I quoted this part:

But — and this is important — money received through these payment apps from friends and relatives as personal gifts or reimbursements for expenses such as splitting a restaurant meal is not taxable.
If, however, there’s a mistake and personal payments get misclassified, the IRS says to sort it out with the app company.
“Those who receive a 1099-K reflecting income they didn’t earn should call the issuer,” the agency said in a year-end tax tip. “The IRS cannot correct it.”

 

[gauss]

Maybe use Zelle going forward?

Does Zelle® report how much money I receive to the IRS?

Zelle® does not report transactions made on the Zelle Network® to the IRS. The law requiring certain payment networks to provide forms 1099K for information reporting does not apply to the Zelle Network®.

 

[cathy63]

Do you think I will have to have Venmo correct it if issued, or explain it away on my tax filings? Seems like it is going to waste a whole lot of people's time and not really accomplish gaining additional tax revenue.


cd : O)

Your best option is to see if Venmo can classify transactions as personal or business, similar to how PayPal does things. I don't use Venmo so I don't know if that's possible.

If you do get a 1099-K and can't get it fixed, or if you really do have sales transactions that shouldn't be taxable (e.g. you resold household or personal items for less than their original purchase price), there are ways to handle this.

1) Create a Schedule C and report income and expenses that are exactly equal. I have done this myself when I got reimbursed by a business for expenses related to a class I taught and they sent me a 1099-NEC. No problems with the IRS and I've never had a Sched C before or since.

2) Report the sale of personal items on Form 8949.
Column (a) -- enter the description as something like "Personal property sold on eBay, see 1099-K"
Column (d) should be less than column (e)
Column (f) should be "L" for a non-deductible loss
Column (g) should be $0

 

[COcheesehead]

Not sure what you mean? It is income to my Plumber, but it's not the banks job (or my job) to tell the IRS about it - it is the Plumber's job to report it

Correct. The IRS wants you to report income, not income you pay to others.

 

[gauss]

Do you think I will have to have Venmo correct it if issued, or explain it away on my tax filings? Seems like it is going to waste a whole lot of people's time and not really accomplish gaining additional tax revenue.


cd : O)

Just speculating here at this point, but one possible way that I could see handling it is to report the 1099-K as issued, but then have an offsetting negative entry on Schedule 1 Other Income with a negative value and a comment about "reimbursed personal expenses" or something to that effect.

This is just a concept at this point. I suspect more mainstream ways to handle this will emerge due to the sheer volume of returns that this will effect this year.

-gauss

 

[qwerty3656]

Correct. The IRS wants you to report income, not income you pay to others.

But the proposal is for paypal/venmo (i.e. the bank) to report the income.

 

[wolf]

I use PayPal and Venmo for reimbursements. I buy lunch and everyone sends me their portion. It isn't income. This is stupid.



We prepaid expenses for a High School event. >$5000. I was reimbursed partially through Venmo. So now, I'm going to have to tell Venmo that was a reimbursement?


cd : O)

You pay, Baby sitter, kid next door to mow lawn, Using Venmo. Now it's taxable? (I know all income is taxable). But now, it really is. If 1099's are issued.

Suppose you sell a used car, boat, etc. Use Venmo. Another 1099. More
taxable income. Or do you have to keep "basis" information.

 

[gauss]

You pay, Baby sitter, kid next door to mow lawn, Using Venmo. Now it's taxable? (I know all income is taxable). But now, it really is. If 1099's are issued.

Suppose you sell a used car, boat, etc. Use Venmo. Another 1099. More
taxable income. Or do you have to keep "basis" information.

When you sell assets either personal, investment, or business for more than you paid to acquire them, then capital gain taxes are due in general. This has not changed.

If you sell at a loss, the tax treatment depends on if the asset is personal or not.

-gauss

 

[rothlev]

Just speculating here at this point, but one possible way that I could see handling it is to report the 1099-K as issued, but then have an offsetting negative entry on Schedule 1 Other Income with a negative value and a comment about "reimbursed personal expenses" or something to that effect.

This is just a concept at this point. I suspect more mainstream ways to handle this will emerge due to the sheer volume of returns that this will effect this year.

-gauss

The 1099-k entry screen will have adjustment screens where you can type in the not taxable amount.

 

[COcheesehead]

But the proposal is for paypal/venmo (i.e. the bank) to report the income.

We’re talking in circles.

 

[rothlev]

Correct. This is not taxable income, so you won't be paying tax on it if your return is prepared properly.

As you allude to, however, the question is does this need to be managed on the Venmo side of things (ie having it configured correctly), or will it be handled on your 1040. Not sure to the answer on this quite yet.

-gauss

You will not have to get an amended 1099k. You will be able to adjust this on the entry screen for the 1099 k

 

[gauss]

I looked at the Venmo FAQ page on this.

Faq #1 reads

1. What are the new reporting requirements exactly?

This requirement only pertains to payments received for sales of goods and services and DOES NOT apply to friends and family payments.

Starting the 2022 tax year, the IRS will require reporting of payment transactions for goods and services sold that meets or exceeds $600 in a calendar year. Anyone who receives at least $600 in payments for goods and services through Venmo, or any other payment app, can expect to receive a Form 1099-K. While Venmo is required to send this form to qualifying users, it’s worth noting that certain amounts included on the form (like refunds) may not be subject to income tax.

To determine whether specific amounts on your 1099-K are classified as taxable income, it’s best to speak with a tax professional.

Note my BLUE highlighted section. It sounds as if your Venmo payments are personal, then a 1099-K will not be issued.

This makes sense in that
1) Venmo is owned by PayPal
2) When I have used PayPal in the past to send money to an individual it would always ask if it was "pesonal" or not. A fee would be deducted for non-personal transactions.

So if past results carry forward, this may not be a huge issue for personal reimbursement types of transactions where no fee is being deducted. If, on the other hand, the transactions are coded as Goods and Services, a fee would likely be deducted and the transaction would be added to the 1099-K.

PayPal, Venmo's parent company, has more on this at the following link:
https://newsroom.paypal-corp.com/20...ow-About-Goods-and-Services-Payments-on-Venmo

-gauss

 

[gauss]

You will not have to get an amended 1099k. You will be able to adjust this on the entry screen for the 1099 k

It will be interesting to see where this is handled on the actual paper pdf return that the tax software usually creates behind the scenes.

As the IRS has not announced any guidance on this, I suspect it may show up on Schedule 1 as I described in my post above.

-gauss