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

[SecondCor521]

I’m not outright disagreeing, but is there an easier way to report legitimate income to the IRS? Sadly but not surprisingly the honor system hasn’t worked, why should honest people pay more than dishonest…

Quite often, the honest reporting of income would have been done on Schedule 1 line 8z, labeled Other income. Things like honoraria and jury pay go here. It's where I will report the income I received this year for being a poll worker at the November elections.

 

[Midpack]

Quite often, the honest reporting of income would have been done on Schedule 1 line 8z, labeled Other income. Things like honoraria and jury pay go here. It's where I will report the income I received this year for being a poll worker at the November elections.

Thanks. I’m not talking about honest taxpayers like you. I was asking how to catch those using Venmo, PayPal and other digital payments systems who knowingly evades reporting income in response to the post “If you look into the details, this is really bad. Big Brother coming after us.” I disagree with that as a blanket statement. Issuing 1099s for anyone who has more than $600 in transactions and then asking them to provide documentation if it’s not income doesn’t seem unreasonable to me. We all have to provide documentation for all sorts of income sources…

 

[FLSUnFIRE]

This whole thing looks like it could be a big mess... or not much of anything. One thing I think will be interesting is how it influences public opinion. Most of the pols rhetoric is about getting the "billionaires" (known for laundering their billions $600 at a time) and a lot of smaller and younger gig workers and side hustlers are going to get caught up in this. If it's a mess I could see thresholds going back up to something I'd consider more reasonable.


Personally, I've received some taxable income via PP but even more reimbursements this year as I booked airfare, rental car and paid some expenses on a vacation for two friends and they paid me back via PP. I'm also expecting my 1099-NEC/MISC (not sure what I'll get) and PP 1099K to double report that portion that is taxable. I know what I earned and will put that on my return.

 

[CRLLS]

It occurred to me. I wonder just how long it will take the IRS to require places that buy your "stuff" to issue 1099-K's. Places like Carmax, "Cash for Gold" and pawn shop like places might be ripe for IRS targets. I sure hope that nobody at the IRS is reading this post.

 

[cathy63]

...Issuing 1099s for anyone who has more than $600 in transactions and then asking them to provide documentation if it’s not income doesn’t seem unreasonable to me. We all have to provide documentation for all sorts of income sources…

To be clear, the vast majority of people are not being asked to document that the income shown on their 1099-Ks is not taxable. Only people who get audited are asked for documentation, and even then, if you don't have documentation the determination of taxability is at the examiner's discretion. If he/she believes your explanation of the payments, they shouldn't levy any additional tax.

You can choose to just not report the 1099-K income that is non-taxable. The IRS does not require every dollar on a 1099-K to match some field on your return, and they even have an example online where you would leave some of it off your Sched C (customer gets cash back on a credit card transaction).

Personally, I think it's best to report it anyway and net it out to zero on Sched 1, Form 8949, or Sched C as previously described in this thread, and that's what I've done for myself and family members in the past. That way if anybody at the IRS does look at your return, there's at least some indication that you thought about it and made a determination that the income wasn't taxable.

I am very interested in how this will work out for our Tax-Aide sites this year. The options of reporting it as a plus and minus on Sched 1 or as a sale on Form 8949 are currently deemed to be out of scope for us, so either we will be doing a whole lot of Sched Cs, or we might have a lot of clients getting inquiry letters from the IRS. I suppose we won't really know how well this works out for 2023 until after tax season is over and we see what the IRS does.

 

[SecondCor521]

Thanks. I’m not talking about honest taxpayers like you. I was asking how to catch those using Venmo, PayPal and other digital payments systems who knowingly evades reporting income in response to the post “If you look into the details, this is really bad. Big Brother coming after us.” I disagree with that as a blanket statement. Issuing 1099s for anyone who has more than $600 in transactions and then asking them to provide documentation if it’s not income doesn’t seem unreasonable to me. We all have to provide documentation for all sorts of income sources…

A lot of the ability to enforce income taxes is due to information returns. If you know the IRS got your W-2 with your SSN on it, it's pretty much impossible to forget or choose to skip reporting that income. Same goes for 1099-Bs, 1099-DIVs, 1099-INTs, 1099-Rs, 1099-Ks, and 1099-NECs.

There is going to be a lot of confusion about these new reporting requirements, and taxpayers are going to spend a lot of time trying to understand how to comply. There will also be some complaining, of course, either (a) people don't want to pay taxes on the income, or (b) the reporting and compliance are complicated and confusing and time consuming. I understand the former but only sympathize with the latter.

I hope collectively Congress and the IRS and the financial institutions can make improvements to the system to be able to better and more easily distinguish between the interpersonal reimbursements and selling of personal goods at a loss from gig income.

I personally think we could make structural changes to the tax code away from this sort of problem, but last I checked I am neither king nor emperor, and nobody from my Senator's office has called lately to ask for my guidance. So I'll just comply with the complex system we have and advocate (probably in vain) for a system I would prefer to move towards.

 

[rodi]

Hmmm. I used to use Venmo a lot for transferring funds to my college kids. I've switched to Zelle, but there is still some back and forth on venmo between us. Example - kid uses my amazon account to buy christmas gifts - charging my amazon store card. Then he venmo's me back to cover it.

Our tenant pays us rent via zelle. But I report that as rental income. (though I see, above, that Zelle doesn't report it.)

 

[Montecfo]

To be clear, the vast majority of people are not being asked to document that the income shown on their 1099-Ks is not taxable. Only people who get audited are asked for documentation, and even then, if you don't have documentation the determination of taxability is at the examiner's discretion. If he/she believes your explanation of the payments, they shouldn't levy any additional tax.



You can choose to just not report the 1099-K income that is non-taxable. The IRS does not require every dollar on a 1099-K to match some field on your return, and they even have an example online where you would leave some of it off your Sched C (customer gets cash back on a credit card transaction).



Personally, I think it's best to report it anyway and net it out to zero on Sched 1, Form 8949, or Sched C as previously described in this thread, and that's what I've done for myself and family members in the past. That way if anybody at the IRS does look at your return, there's at least some indication that you thought about it and made a determination that the income wasn't taxable.



I am very interested in how this will work out for our Tax-Aide sites this year. The options of reporting it as a plus and minus on Sched 1 or as a sale on Form 8949 are currently deemed to be out of scope for us, so either we will be doing a whole lot of Sched Cs, or we might have a lot of clients getting inquiry letters from the IRS. I suppose we won't really know how well this works out for 2023 until after tax season is over and we see what the IRS does.

I agree. If I get an information return such as a 1099, I want to show that figure on my tax return, and then net it out to whatever the taxable portion is. Likely zero in the case of Venmo transactions.

This might reduce the risk of a letter from the IRS, which could bring further needless scrutiny.

 

[CaptTom]

Our tenant pays us rent via zelle. But I report that as rental income. (though I see, above, that Zelle doesn't report it.)

One article I read did mention Zelle as subject to the new rules for reporting.

I got reimbursed via Zelle for over $1,500 this year. It was personal, not a business transaction, and I didn't come out ahead. I didn't even get all my expenses reimbursed. So I'm following this closely.

As for the government and tax prep industry fixing this, don't count on it. The industry gives significant campaign contributions to ensure the legislators keep the tax laws as complex as possible.

 

[albireo13]

The IRS includes the Paypal fee in your taxable income (via 1099k).
I assume that the fees are also part of Paypal’s revenue stream which is reported to the IRS.
Sounds like double dipping by the IRS.

 

[ShokWaveRider]

The IRS includes the Paypal fee in your taxable income (via 1099k).
I assume that the fees are also part of Paypal’s revenue stream which is reported to the IRS.
Sounds like double dipping by the IRS.

Same as eBay. I will most likely deduct the fees from the totals and declare that, ....... and see what happens.

 

[gauss]

It occurred to me. I wonder just how long it will take the IRS to require places that buy your "stuff" to issue 1099-K's. Places like Carmax, "Cash for Gold" and pawn shop like places might be ripe for IRS targets. I sure hope that nobody at the IRS is reading this post.

I thought that some/most/all businesses who pay you more than $600 in year were required to issue 1099-MISC currently. Maybe not all business have this requirement, but I know that I have received it in the past.

-gauss

 

[Midpack]

Reasons not to use Venmo and the like to pay wages, before this latest IRS reporting change.

https://www.everee.com/blog/venmo-paypal-for-payroll/

 

[cathy63]

The IRS includes the Paypal fee in your taxable income (via 1099k).
I assume that the fees are also part of Paypal’s revenue stream which is reported to the IRS.
Sounds like double dipping by the IRS.

Yes, the number on your K-1 from PayPal includes the PayPal fees. If you are running a business that receives income on a K-1, you subtract the fees as a business deduction and there's no double dipping. It's worked this way for many years.

If you are not running a business and you receive a K-1 then you only need to report and pay taxes on the portion of income that's actually taxable, so again, no double dipping.

The question for non-business income is how and whether to report the non-taxable portion of the payment (e.g. the fees, reimbursements, gifts, etc) so as to head off any potential inquiries that might come from the IRS in the future.

 

[RE2Boys]

Guidance from HR Block website:

https://www.hrblock.com/tax-center/...ons – You'll report,the issuer's name and EIN.

Seems to advocate for the double entry method of offsetting the income with a second entry as an adjustment to income

 

[albireo13]

Yes, the number on your K-1 from PayPal includes the PayPal fees. If you are running a business that receives income on a K-1, you subtract the fees as a business deduction and there's no double dipping. It's worked this way for many years.

If you are not running a business and you receive a K-1 then you only need to report and pay taxes on the portion of income that's actually taxable, so again, no double dipping.

The question for non-business income is how and whether to report the non-taxable portion of the payment (e.g. the fees, reimbursements, gifts, etc) so as to head off any potential inquiries that might come from the IRS in the future.

Yes, the question is where to report and subtract the fees. Also, the original cost of the item you sold.

 

[gauss]

Yes, the question is where to report and subtract the fees. Also, the original cost of the item you sold.

In general, if you were not running a business, the fee would normally be correctly reported/subtracted on Schedule A - miscellaneous deductions (subject to 2% AGI floor limit).

Unfortunately the 2% miscellaneous deductions have been suspended for tax years 2018 through 2025 and thus is not available as a separate deduction.

Perhaps you can view it as being included as part of the enhanced standard deduction that is available in 2018-2025.
-----
For your particular case, albireo13, where you are buying and then reselling goods in connection with hobby interests, why do you think Schedule D/ 8949 does not apply? I think this would be the cleanest way to address your situation and I suspect that you could even properly offset the PayPal fee using this method in addition to your cost basis in the items.
-----

-gauss

 

[sengsational]

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

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

My credit union sent a letter out maybe a year ago that compelled members to push back on their congress person against a $600 reporting requirement. I'm wondering if that passed. The CU said it would be an enormous effort, and raise costs of operation.

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

The IRS wants to catch people in a lie.

That's the purpose of this reporting, and unless you are really "earning money", and not reporting it, you have nothing to fear.

My approach, if I get a 1099-K, is to fiddle with the tax software until I see no tax paid on those funds. I'm not "earning money".

It's just like the question about foreign bank accounts...if they catch you in a lie, they've got a great case against you. They're not going to make a case against anyone except the most blatant examples.

 

[karen1972]

The minute this was announced there was a lot of posts on social media warning about it.. however those posts were clearly from people this IRS ruling was specifically targeting.

Lots of suggestions to say it was personal or "lunch" when it really was dog walking, a hair cut, etc. For me its one thing for someone to lie on their taxes and its another for them to want ME to lie for them, hard pass.

 

[gauss]

Sengsational,

I basically agree with this for the first year.

I suspect in future years, if people continue to receive 1099-K's that they report but make go away on their tax returns, that they will start to receive inquiry letters from the IRS requesting additional documentation to justify to the IRS that it is nontaxable income.

The long term proper way to handle this is to ensure that all of your nontaxable transactions (ie reimbursements, gifts. etc) are coded properly by the payers so that 1099-K's will not be issued.

So IMHO, you can do this now, or wait until the IRS starts asking questions to motivate you.


-gauss

 

[SecondCor521]

The long term proper way to handle this is to ensure that all of your nontaxable transactions (ie reimbursements, gifts. etc) are coded properly by the payers so that 1099-K's will not be issued.

That would be lovely. But I don't expect it to happen, because there really is little practical difference that I can see between:

A. "Hey Venmo, that $50 was a reimbursement, not a sale."
B. "Hey IRS, that $50 was a reimbursement, not a sale."

Except the latter is done under penalties of perjury; check the text above where you sign your 1040, or the Form 8879 if you submit electronically. Which I guess is part of @sengsational's point.

 

[albireo13]

Yes, the number on your K-1 from PayPal includes the PayPal fees. If you are running a business that receives income on a K-1, you subtract the fees as a business deduction and there's no double dipping. It's worked this way for many years.

If you are not running a business and you receive a K-1 then you only need to report and pay taxes on the portion of income that's actually taxable, so again, no double dipping.

The question for non-business income is how and whether to report the non-taxable portion of the payment (e.g. the fees, reimbursements, gifts, etc) so as to head off any potential inquiries that might come from the IRS in the future.

IRS has the fees reported as income, for both me and for Paypal.
That is just false and obviously so.

 

[cathy63]

IRS has the fees reported as income, for both me and for Paypal.
That is just false and obviously so.

The requirement is that box 1 on the K-1 includes payment processor fees. Nobody here has said otherwise. Lots of IRS forms include non-taxable income, e.g. 1099-INT, 1099-DIV, 1099-SSA, 1099-B, so this is really not any different, but if you don't like it, you can always contact your Congressional Rep and/or your Senators and ask them to change the law that they passed.

If you need help figuring out what to do with this non-taxable income on your return, then I suggest visiting an AARP Tax-Aide site. If you qualify, they will prepare and e-file your return at no cost to you.

 

[Buckeye]

Aren't there 2 modes on Venmo? Peer to peer and customer to business?

 

[SecondCor521]

Aren't there 2 modes on Venmo? Peer to peer and customer to business?

I don't use Venmo, but there are two similar ones in Paypal. If it's friends and family, there are no fees and no guarantees. If it's business, there is some fee paid by the recipient of the funds, and there's some sort of guarantee. I'm not familiar with the latter as I don't think I've ever used Paypal that way.