Earlier in September, social media users discussed the possibility of the IRS employing a tax on Venmo transactions exceeding a certain amount of money. Users were enraged at the thought of the government taxing money twice, especially when that money would mostly come from low-income and middle-class individuals who primarily use the smartphone app.
What do the legalities actually say on Venmo and taxes in 2022? Here's the scoop before the new year.
Claims suggest that the IRS changed the rules for Venmo in 2022
Social media posts (like this one on Facebook) understood the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals as a call for taxing Venmo transactions.
Users were stating that people who deposit $600 or more annually from smartphone apps like PayPal and Venmo will be taxed for that "income."
The post has since been deemed false by independent fact checkers. Here's what the proposal really means.
The reality: Financial institutions must report Venmo transactions to the IRS
The proposal, which comes from the U.S. Department of the Treasury, is actually an addition to a May ruling in which the government required financial institutions to track inflows and outflows from most types of bank, loan, and investment accounts. Any account with credits and debits exceeding $600 annually gets reported in the process.
This information gets sent to the IRS to help them track back taxes, with the ultimate goal of cutting down on those owed taxes.
The IRS says there's a big gap in taxes in the U.S. each year, with the amount of taxes Americans owe far outpacing how much they're paying. On average, U.S. taxpayers owe $166 billion more in taxes than they're paying each year.
No new taxes were mentioned in the proposal. Instead, it's a document outlying how the IRS will make taxation more efficient without increasing taxes. Ultimately, the hope is to increase governmental revenue.
Reportedly, the IRS won't see transaction details, only the amount. As long as you're paying your taxes each year, you won't see an increase in how much you're paying out.
Will Venmo send you a 1099 next year?
If you've used Venmo recently, you might have noticed a new question on the screen before you send someone money. Venmo wants to know if you're paying for a good or service. This PayPal-esque question helps Venmo determine who's receiving money from friends and family versus who's earning money as an employee or independent contractor.
If you're a seller accepting payments on Venmo, you have more than $20,000 in gross payment volume, and you have more than 200 separate payments during the year, Venmo will automatically send you a 1099.
Even if you don't meet that threshold, you're still required to report all eligible income. It's up to each taxpayer to know where they're receiving money and acknowledge that income. The best way to do this is to keep detailed books about your sources of income and platforms from which you accept payment.