Reporting P2P Payment Transactions on Venmo, PayPal, and Zelle

In recent years, peer-to-peer (P2P) payment apps have made life easier for many of us. As individuals, we may be using these apps to split a restaurant check or pay the guy who does our yard work in the fall. Small businesses are using them to accept money from customers and clients. There’s a good reason why platforms such as PayPal, Venmo, and Zelle are popular: they’re fast and convenient and can be accessed right from our mobile phones. Some of them offer popular small business tools such as invoicing and accounting. 

But if you use these tools regularly, particularly for a small business, you may be wondering about the tax implications, and rightfully so. Some small businesses are using payment tools to collect a significant portion of their earnings. 

Do I Need to Report My P2P Payment Transactions?

If you’re using these platforms for personal reasons such as to pay for your half of a restaurant tab, the answer is no, since this money isn’t taxable. If you are using them in a work capacity as a freelancer, for example, or any other type of small business, the answer is yes…you need to report these payments as income. P2P payment platforms such as PayPal, Venmo (which is owned by PayPal), Stripe, Zelle and others are required to provide information about payments to the Internal Revenue Service (IRS) about users who are receiving payments for goods and services using their platforms.

In other words, the IRS knows what you’re up to, so failing to report this income could lead directly to audits and penalties. 

What is the Threshold for Reporting Payments?

In past years, the payment threshold was fairly high, so users didn’t need to report small sums. Prior to 2021, payment platforms were required to report transactions in excess of $20,000 in gross payment volume as well as 200 separate payments in a calendar year. Now, as more freelancers and small businesses have begun using the platforms, this threshold has been lowered significantly. Beginning with the tax year 2022, if a payment platform user receives payment for goods and/or services through a third-party payment network, their payments are required to be reported on Form 1099-K if more than $600 was processed during the year regardless of the number of transactions. 

This change applies to businesses of all sizes, including individuals who are self-employed or have side-gig income or real estate rental income.

How Do I Pay My Taxes for Online Transactions?

In most cases, the payment platform will send you a Form 1099-K (as well as one to the IRS) during tax time the following year. It’s important to note, however, that even if you don’t receive a 1099-K from your payment platform, you’re still required to report any business income you receive through these platforms on your income tax return. Be sure to keep track of the cost of doing business through these platforms, such as the fees they levy for use, as these will be tax deductible. 

Consult with a Tax Professional

If you use payment platforms and you’re unsure whether you owe money in taxes or uncertain how you can be sure to report income properly, consult with a tax professional. 

DOAAR is a small business bookkeeping, tax, and consulting services firm, with an additional focus on its client’s personal finances. Specializing in bookkeeping, controller, and CFO services, DOAAR’s offering spans daily accounting, month-end close, complex financial modeling, and oversight. From execution to analysis and strategy, DOAAR provides clients with a powerful and fully integrated back-office accounting solution. We have locations throughout California and the rest of the U.S. Visit our website for more information or to contact us.