Do You Have to Pay Taxes on Venmo and Zelle Payments?

Payment apps have made it easier than ever to split the bill when you go out with friends, but new rules in the tax code might add some extra complication to apps like Venmo and Zelle.

You can still split the bill with friends without any tax implications, but if you receive $600 or more tagged as “goods and services,” or if you have a business account with a payment processing app, you will receive a Form 1099-K for reporting this income to the Internal Revenue Service on your 2022 income tax return.

If you use multiple payment platforms to receive payments, you may not receive a 1099-K tax form, but that doesn’t mean you don’t have to report this income on your taxes. Keep reading to see what rules apply to you, and how this change will affect your payments and taxes. If there is any confusion, you should talk to a tax professional about your specific situation.

Venmo and Taxes: When Do I Need to Report Venmo and Zelle Payments on My Tax Return?

If you receive any amount of money for goods and services through a payment app, this counts towards your taxable income. For tax year 2022, you need to file a federal tax return as a single person if your gross income exceeds $12,550, and for married-filing-jointly if your income exceeds $25,100.

Previously, a 1099-K would only be sent to those who earned over $20,000 and had more than 200 payment transactions. The new rule, which affects tax year 2022 and beyond, has lowered this amount to $600. Individual states have their own rules for state income taxes (in Maryland, for instance, the amount is also $600 in gross payment volume).

This change will have the biggest effect on gig workers, independent contractors, casual online sellers, small business owners, and freelancers who receive small payments via a cash app throughout the year. This includes those who sell items (even as a side hustle) on Etsy, and those who receive payments through CashApp, PayPal, Venmo, Zelle and other digital payment services.

Those who are self-employed may already be familiar with reporting business income from payment apps, especially if they are subject to making quarterly estimated tax payments.

RELATED: Do I Need to Pay Taxes If I’m Self-Employed? Short Answer, Yes. Here’s How

What Payments Do NOT Need to be Reported on My Tax Return?

One of the biggest perks of apps like Venmo and Zelle is that you don’t have to carry cash with you in order to repay your friends and family. If you split the bill for dinner and your friends pay you back, you do not pay taxes on those personal transactions. If friends or family send you money through a payment app, you do not need to pay taxes for those gifts either.

For people who use digital payment apps for their side gig, it is best to separate business accounts from personal accounts to ensure clarity in what is income and what is not.

If you sell personal items at a loss, like getting rid of unused stuff at a garage sale, payments for those items are not subject to income taxes. However, if the buyer marks the payment as “goods and services,” and you have over $600 in gross payments for items marked as “goods and services,” you will receive a Form 1099-K.

This is where things can get a little complicated, and where you will benefit from good record keeping. If you have a 1099-K and don’t believe that money should be classified as taxable income, you should speak to a tax professional.

RELATED: Earned vs. Unearned Income: What’s the Difference?

What If I Don’t Receive a 1099-K?

If you received small payments for goods and services, such as a side gig or hobby income, you will not receive a 1099-K if the total is less than $600. If you received more than $600, but it was spread across multiple payment platforms, you may not receive a 1099-K from one or all of those apps.

This does not mean you don’t need to report the income! If your total income minus your business expenses (also known as net income) exceeds $400, you need to file Schedule SE for self-employment taxes. This is true whether you receive any 1099-Ks or not.

Since self-employment income can become complicated, if you have any questions it is best to get tax advice from an expert.

Should I Ask a Tax Professional for Help?

If you receive a Form 1099-K from a digital payment app in early 2023, don’t panic. The apps have to send this form to be compliant with the new tax rules.  If you agree that you received the income, it may be easy to report this on your federal tax return.

However, if you disagree with the information in the 1099-K, or you believe only part of that amount counts as reportable income, you should speak to a tax professional to figure out what to do. If you aren’t sure if you owe self-employment taxes, or if you have any questions about filing, you would benefit from speaking with someone who is very familiar with tax law.

S.H. Block Tax Services can answer all your questions about tax compliance for payments from services like Venmo and Zelle. Call our office at (410) 872-8376 or fill out our contact form for a free consultation regarding this, or any other tax questions.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.