What you need to know about taxes if you use payment apps like Venmo

As tax season approaches, mailboxes and inboxes across the country are filled with tax forms. This year, confusion already reigns over changes to Form 1099-K. While these form changes won’t officially go into effect until next tax season, here’s what you need to know in 2022.

What is Form 1099-K?

Form 1099-K, Payment Card and Third Party Network Transactions, is used to report certain payment transactions to taxpayers and the IRS.

A reportable payment transaction means a payment card transaction or a third-party network transaction. Payment card transactions include accepting a card, such as a gift card, credit card, or debit card, for goods or services. A third-party network transaction is a transaction that is settled through a third-party payment network such as PayPal or Venmo.

The simple rule: If you’re set up to accept payment cards as a payment method, or if you’re using a payment gateway, you may receive a Form 1099-K from the company that settles the transaction.

So, for example, if you receive a payment via Etsy Where Amazon for the sale of property, you may receive a Form 1099-K. Or, if you accept payment through PayPal for your services, you may receive a Form 1099-K. Some companies, like Uber, also issue Form 1099-K to nonemployees who accept credit cards as payment.

You will find more details in the regulations.


Form 1099-K is relatively new compared to other reporting forms – it has only been around for about a decade. This was part of the Housing and Economic Recovery Act enacted in 2008, but the rule did not come into effect until 2012.

The report is obligatory when payments total more than $20,000 or there are more than 200 transactions settled through a third-party network. No threshold applies to payment card transactions.

Prior to Form 1099-K, taxpayers who provided certain goods or services with a value greater than $600 were responsible for issuing Form 1099-MISC. With the advent of Form 1099-K, Form 1099-MISC did not have to be issued if payments were made with a credit card or charge card and certain other types of payments, including third-party network transactions. The difference created a hole in the reports.

What changes

The Covid-19 Relief Bill which was enacted on March 11, 2021 changed the reporting threshold. As of January 1, 2022, third-party payment networks must report commercial transactions totaling more than $600 to the IRS on Form 1099-K.

Yes, that’s a big difference.

What to do

For the 2021 tax year – the tax return you will file in 2022 – it should be business as usual. You should receive Form 1099-K by January 31, 2022.

The amount shown on Form 1099-K is a gross amount and does not include any adjustments for credits, cash equivalents, rebates, fees, refunds, or cash back on purchases. This may not represent the actual amount that is taxable to you. I hope you have kept excellent records throughout the year so that you can correctly report the amounts paid to you, annotating or noting any discrepancies. In most situations, you will report income from Schedule 1099-K on your Schedule C on your 1040 – you also deduct your expenses and account for adjustments on this schedule.

If there is an error on the form, you will want to take action. If there is an error, such as a wrong tax ID or TIN, you should request a corrected Form 1099-K. Be sure to retain any correspondence related to the error.

If there has been a change in ownership or entity form for your business during the year, you must have notified your credit card company or payment platform. If you have not done so or if the information has not been updated, request a corrected Form 1099-K if possible. Otherwise, you will need to work with your preparer to properly account for any discrepancies between what is shown on the form and what is shown on your credit card.

For the 2022 tax year — the tax return you will file in 2023 — third-party payment networks such as PayPal and Venmo will be responsible for reporting under the new threshold. You may need to take steps now to ensure compliance, such as updating your tax information, including a social security number or tax identification number, to continue accepting payments for sales of goods and services during the year.

You also need to make sure you keep excellent records. The rollout of the 2012 reporting requirements was not particularly smooth – there was confusion and double reporting when more than one entity issued a form – and it took a few years to prepare. With a shorter window and a much (much) lower sill, there are bound to be problems. With sales, returns, and document adjustments, be ready to answer questions.

What you should not do

With remote work and the pandemic, there’s a lot going on. You might be tempted to put off keeping records with the idea that you will find meaning in them later. No. Take steps to keep good records now so you don’t have to scramble to make sense of it all at the end of the year.

It’s not uncommon to have more than one company, especially if you’re in the gig economy, and it may be desirable to bundle everything together. Don’t do that either. If you have multiple sources of income, track them and report them separately, even if you receive a single Form 1099-K with gross payment receipts for all of your businesses.

You are responsible for declaring your income even if you do not receive the corresponding form. If you do not receive the Form 1099-K, do not assume that you can ignore the statement. I have faced more than one revenue officer on behalf of taxpayers who failed to report income that should have been reported on a 1099 form. In all of these cases, not once did the IRS accepted “I didn’t receive a form” as a legitimate excuse for not reporting – they did, however, accept it as an excuse when there were simply discrepancies in the amount.

To avoid over-reporting, some platforms have signaled that they will treat business and personal accounts differently. As a result, TikTok and Facebook users are lighting up social media by letting you know that you can simply avoid reporting by converting business accounts to personal accounts. Step-by-step instructions are even available. However, if you are a business, you are a business. And if something is taxable, it is taxable. Pretending that business transactions are truly personal in nature doesn’t make it that way, just like putting on tap dancing doesn’t make me a dancer, no matter how badly I want to.

If the plan is to refuse to declare so that you don’t have to pay tax, that’s not smart, that’s fraud. Even if you plan to report but just don’t want to deal with the forms, you may be doing your business a disservice – misrepresenting the nature of your transactions can get you kicked out of payment platforms.


It is important to understand that this change in law applies to third party reporting, not to your individual tax obligations. These have not changed. It has always been the case that you have to declare your taxable income, whether it is payable to you in cash, on a credit card, via a company checking account or via a cryptocurrency platform. That said, if you haven’t reported correctly, now is your chance to become compliant. It is, after all, a new year.

This is a weekly column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest tax news, tax law and tax policy. Look for Erb’s column each week in Bloomberg Tax and follow her on Twitter at @taxgirl.

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