1 Year Reprieve For Reporting Your PayPal And Venmo Payments Expires December 31, 2024
IRS announced plans for a threshold of $5,000 in 2024 to phase in implementation.
IRS Digital Payments 2025: The IRS issued Notice 2023-74 that provided that calendar year 2023 would be regarded as a further transition period for purposes of IRS enforcement and administration of the minimum reporting threshold for Form 1099-K, Payment Card and Third Party Network Transactions.
With respect to calendar years beginning before January 1, 2024, a third party settlement organization is not required to report payments in settlement of third party network transactions with respect to a participating payee unless the amount to be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200.
This notice did not affect whether payments in settlement of third party network transactions were income to the participating payees.
According to article in the New York Post by Glenn Reynolds a tweet said it all, “Sam Bankman-Fried: I don’t know where $10 billion went. The Pentagon: We don’t know where $2.2 trillion went. The IRS: You just received $601.37 on Venmo don’t forget to report it.”
The IRS comes for your PayPal & Venmo, courtesy of the Democrats' and the American Rescue Plan (ARP) Act, has deputized payment processors to snitch on you by lowering the Form 1099-K reporting threshold from more than 200 transactions and $20,000 to just $5000, regardless of the number of transactions.
Per the IRS, a third party settlement organization (TPSO) is required to report any information concerning third party network transactions of any participating payee for payments made for "goods and services" only if the gross amount of total reportable payment transactions exceeds $5000 for the calendar year.
Sell a little-used Can-Am side-by-side on Facebook Marketplace for $9,000?
Receive $6,000 Venmo from your parents to pay school fees and meal program?
Receive $2,000 Venmo from each of your four siblings for their share of vacation rental property you reserved?
Congratulations, you may be receiving a Form 1099-K from Facebook and Venmo by January 31, 2025 if they mischaracterize your transactions as income from "goods and services".
According to Reynolds it gets worse.
"People get payments through these companies for all sorts of things, like gifts from family members, expense reimbursements from employers, even money from friends for medical expenses, etc. Venmo and PayPal may — and sometimes undoubtedly will — mischaracterize these tax-free gifts as something taxable.
Well, no problem, you can just tell the IRS that Venmo is wrong, right?
Oh, no. That would be too easy. According to the IRS: “Those who receive a 1099-K reflecting income they didn’t earn should call the issuer. The IRS cannot correct it.”
Who is covered by the new 1099-K regulation?
Credit card processors
3rd party payment networks
PayPal
Airbnb
Venmo
Cash App
Facebook Marketplace
What to do if you receive a 1099-K
Do not ignore it!
Figure out why it was issued, i.e. do you have a hobby or side business?
Review your payment processor history to identify reimbursements
The easiest solution is to prepare a Schedule C to include with your Form 1040, U.S. Income Tax Return that records the income and deducts the amount back out as non-taxable income.
Conclusion
Based on 25+ years of IRS representation experience I can unequivocally state that the IRS is hostile to small businesses and the self-employed. I foresee hours arguing with IRS agents over the need to scrutinize minor children's bank accounts and de minimis tax deficiency notices all while the government is incapable of accounting for billions of dollars.
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About the author
Mark opened Mark Sullivan Consulting, PLLC in October 2022 after a decade of tax consulting in FinTech. He is fairly new to the Phoenix area having moved here from St. Louis, Missouri in July 2020.
Mark has over 30 years of experience, including several years with the IRS as a Revenue Officer and over 16 years as director at a firm that specialized in civil and criminal tax accounting, IRS representation and forensic accounting. He has been admitted as an expert witness for civil and criminal tax cases in both State and Federal courts. Since relocating to Arizona and returning to practice, he has concentrated on tax compliance and planning for individuals and businesses, advisory and representation services.
He has an unlimited licensed to practice as an Enrolled Agent nationwide and is a member of the National Association of Enrolled Agents.
A long-time Jeep enthusiast, Mark enjoys off-roading in his 2006 Jeep Wrangler LJ around the Southwest or wherever he goes on vacation.
Copyright 2024 Mark Sullivan Consulting, PLLC.
Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.
Reference: IRS Notice 2023-74
Reynolds, Glenn H., "Team Biden is using the IRS to attack the gig economy", New York Post (12/6/22)
Glenn Harlan Reynolds is a professor of law at the University of Tennessee and founder of the InstaPundit.com blog
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