Payment apps like Venmo and Paypal have become popular recently, and the younger generation is using these platforms to send and receive money. These platforms are also being used for self-employed people and businesses receiving payments for goods and services. While these apps are convenient, weighing out third party payment platforms and the tax implications is important for small businesses.
Using Venmo for Business
So you send some money here and there to friends, but what about transactions related to goods and services? When you send or receive money for business purposes, the IRS wants this information reported properly. A company or individual paying for a service or product using a third-party app like Venmo should receive a 1099-K from the third party.
Paying a Contractor through Venmo
What if I am paying a contractor through Venmo? Since Venmo is a third-party processor, the 1099-K rules apply and the businesses don’t need to send a 1099 to the contractor. Venmo will send the form directly. However, one very important caveat to note is that this only applies to paying a contractor through their business profile. If you are paying a contractor via their individual profile, the business does need to issue a 1099 themself.
Venmo Reporting Thresholds
The recent reporting thresholds for third party apps like Venmo are another important thing to note. The IRS initially planned to implement a lower $600 reporting threshold for goods or services sold through third-party payment apps. But at the end of November 2023, the IRS released Notice 2023-74,indicating an additional delay in implementation of the $600 threshold. So now the reporting threshold for the 2023 tax year will return to the previous reporting numbers.
In conclusion, while payment apps offer convenience, it’s essential to stay informed about the tax implications, especially when conducting business transactions. Other factors need to be weighed out when choosing a third party platform such as Venmo such as transaction fees, the need for tighter bookkeeping, etc. It’s important to keep on top of the IRS regulations, ensuring compliance and avoiding any tax-related headaches down the line.