Venmo, PayPal, and the IRS – 2022

If you’re a gig worker, freelancer, or small business owner who got paid through Venmo or PayPal in 2022, you might have some questions about what the IRS expected from you. Maybe you heard rumors about new reporting rules. Maybe you got a 1099-K form and weren’t sure what to do with it. Or maybe you’re just trying to make sure you handled everything correctly.

Let’s break it down in plain English: no judgment, no stress.

What Changed (and What Didn’t) in 2022

Here’s the deal: Congress had actually passed a law back in 2021 that was supposed to drastically lower the reporting threshold for payment apps. The new rule would have required platforms like Venmo, PayPal, Cash App, and others to report payments as low as $600.

But for the 2022 tax year? That $600 threshold wasn’t actually in effect yet.

The threshold that applied to 2022 was still the old standard: $20,000 in gross payments AND more than 200 separate transactions.

That means if you received payments for goods or services through these apps, the platform was only required to send you (and the IRS) a Form 1099-K if you hit both of those numbers.

Wait, What’s a 1099-K?

Good question. A 1099-K is basically a tax form that payment processors send out to report how much money flowed through your account for business transactions.

If you met the threshold in 2022, Venmo or PayPal would have sent you this form by January 31, 2023. It showed the total gross amount of payments you received for goods and services during the year.

Here’s what it didn’t include:

• Personal payments (like splitting dinner with friends)
• Money from family members
• Reimbursements

The 1099-K only covered business-related income. So if your cousin paid you back for concert tickets through Venmo, that wasn’t supposed to show up on the form.

Did You Still Have to Report Income If You Didn’t Get a 1099-K?

Yes. This is where a lot of folks get tripped up.

Even if you didn’t receive a 1099-K: because you didn’t hit the $20,000/200-transaction threshold: you were still required to report that income on your tax return.

The IRS doesn’t care whether you got a form or not. If you earned money, it’s taxable. Period.

So if you made $8,000 selling handmade jewelry on Etsy and got paid through PayPal, that income needed to be reported: even though PayPal wasn’t required to send you a 1099-K.

What About State Rules?

Here’s a curveball: some states had lower reporting thresholds than the federal government.

That means you might have received a 1099-K based on your state’s requirements, even if you didn’t meet the federal threshold. States like Massachusetts, Vermont, and Virginia had stricter rules in place.

If you lived in one of those states and got a 1099-K, don’t panic. It just means your state required reporting at a lower level.

Common Mistakes to Avoid

Let’s talk about what could have gone wrong (and how to avoid it if you’re catching up on past filings):

1. Ignoring the 1099-K

If you received one and didn’t report the income, that’s a red flag for the IRS. They got a copy too, and they’re matching it against your return.

2. Double-Counting Income

If you already tracked your business income separately, make sure you’re not reporting the same money twice. The 1099-K amount should match what you’ve already been tracking: not be added on top.

3. Forgetting to Deduct Expenses

Gross payments aren’t the same as profit. If you received $25,000 through Venmo but spent $10,000 on supplies, shipping, and other business expenses, you’re only taxed on the net income. Make sure you’re claiming those deductions.

4. Mixing Personal and Business Transactions

This is a big one. If you used the same Venmo account for both personal and business payments, it can get messy. The IRS expects you to separate business income from personal transfers. If you haven’t already, consider setting up a dedicated business account for future transactions.

How This Affected Gig Workers

If you drove for DoorDash, sold items on eBay, took photography gigs, or earned income as a realtor using payment apps, the 2022 rules applied to you.

For many gig workers, the $20,000 threshold was high enough that they didn’t receive a 1099-K. But again: that didn’t mean the income was invisible to the IRS.

If you kept good records and reported your earnings accurately, you were in good shape. If not, it’s not too late to get things sorted out.

What Came After 2022?

The IRS kept delaying that $600 threshold. For 2023 and 2024, they continued to push back implementation. As of now, the $20,000/200-transaction threshold has been extended, giving small business owners and gig workers a little more breathing room.

But here’s the thing: lower thresholds are likely coming eventually. The best time to get your recordkeeping in order is now: before the rules tighten up.

Need Help Sorting This Out?

If you’re looking back at 2022 and realizing you might have missed something, or you’re trying to get ahead of future tax seasons, you don’t have to figure it all out alone.

At Small Business Tax Solutions, we specialize in helping sole proprietors, single-member LLCs, and gig workers navigate exactly these kinds of situations. No judgment, no stress: just practical help to get you on track.

Ready to talk through your situation? Schedule a free consultation and let’s make sure your taxes are working for you, not against you.