Venmo, PayPal transactions

[PM01982]

The government postponed the implementation of the $600 threshold for 1099 from the common money transfer apps used by friends to pay for lunch, tickets, gas, etc.  

Will that $600 threshold be implemented for 2023 tax year?  If they send me a 1099, how do I prove that money was not business related?  What if I'm collecting payments for a team and the total is in the thousands for the year?  How would I prove it's not income, just an aggregation point as I'm the Treasurer?

[Gabriella_EA]

Hi @PM01982! Thanks for your question.

Beginning with 2023, the threshold of $600 without any consideration to the number of transactions will apply. If you use a peer-to-peer payment platform like PayPal, Venmo or CashApp to make payments between friends and they are classified as friends-and-family payments, you generally shouldn’t receive a 1099-K form reporting these payments. However, the individual/business making payments to you marks the payments as business transactions and the amounts total more than the threshold during the year, you will likely receive a 1099-K form reporting these payments.

If you receive an Form 1099-K for income that is not taxable income, the IRS provides information on how to report this amount. You can report the amount in Part 1, Line 8z, Other Income of Schedule 1, Addition Income and Adjustments to Income and also report the the non-taxable amount in Part 2, Line 24z, Other Adjustments of the same form. This process adds an amount to your income and then subtracts an amount from your income while at the same time accounting for the amount shown on the 1099-K on your tax return so that it matches the IRS records.

If you're interested, you can read more at our blog article Did You Get a Form 1099-K and Aren’t Self-Employed or a Small Business?

[KanchanM]

Hello,

There is a lot of confusion about the new rule. The new threshhold rule of $600 is only for goods and services transactions, so this doesn't include paying for your family and friends. So, the Third-Party Settlement Organizations (TPSOs), like PayPal and Venmo will have to report goods and services transactions made by customers with $600 or more in annual gross sales on 1099-K forms. Currently, a 1099-K is only required when a user receives more than $20,000 in goods and services transactions and more than 200 goods and services transactions in a calendar year.  

Let us know if you have any additional question.

Please give me a thumbs up if this answers your question. Thank you 🙂

[Cindy4]

Just a side note.  There is a proposal on the House floor to clear up this 1099-K business a bit.  You can read about it here:

https://pappas.house.gov/media/press-releases/pappas-kildee-introduce-legislation-to-revise-1099-k-r....

[PM01982]

Thank you.

So there's no proof that needs to be provided on Schedule 1 regarding taxable or non-taxable?  If I have $3,500 in transactions coming in which triggers the 1099-K for lunch, tickets, gifts, etc., it's a matter of just listing that $3,500 as non-taxable?  

[Gabriella_EA]

@PM01982 

In the long run, it sounds like you need to get this transaction activity moved into an account with the payment processor (Venmo, PayPal etc.) that's not in your name - ideally, the account would be in your organization's name/tax ID.

If you've already had enough transactions come through your account to trigger the 1099-K, you don't need to provide any proof or documentation to the IRS when you initially file your return. You do, however, want to keep good records of the transactions and what they're for so that if the IRS ever sends you a letter questioning the income, you'll be able to clearly identify and support with documentation why the amount reported shouldn't be considered taxable income to you.