This Is How Venmo Users' Tax Refunds Could Be Impacted in the New Year

Frequent Venmo, PayPal and other mobile payment service users might see a lower tax refund in 2023, and they could even owe money if they sold taxable goods or services through the platforms in 2022.

Part of the American Rescue Plan that President Joe Biden signed into law in 2021 drastically lowered the reporting threshold for Form 1099—a type of tax form often used for reporting miscellaneous income—from $20,000 for the year to $600 for mobile payment platforms like Venmo.

Although the amount of tax owed hasn't changed, more people are likely to receive a 1099 form in 2023 for goods sold or services rendered in 2022, and that includes those paid for through Venmo or similar platforms.

The new reporting threshold began in 2022, meaning that Americans will see the change reflected on their 2022 tax forms likely to be received in January 2023. The law requires those mobile payment platforms to report taxable payments exceeding $600 annually to the Internal Revenue Service (IRS).

People not familiar with the taxable income could pay a higher tax this year, or they could receive a lower return. However, one expert said the new reporting system doesn't mean more taxes are owed.

"Many people erroneously think they only owe the tax if they receive a 1099; now they are more likely to receive the 1099 and therefore to pay more tax," University of Florida Levin College of Law professor David Hasen told Newsweek in an email.

However, Hasen said Americans owe taxes on taxable income whether or not they receive a 1099 from the IRS. More 1099 forms will likely be issued this year because the mobile payment services report the income at a much lower number, but Hasen argued that people receiving the form still owed the tax in the past.

Hasen said that those who have paid the tax even if they didn't receive a 1099 have been paying the correct amount all along and their payments likely won't be affected. What this does is alert the IRS of the services much earlier than in prior years.

Newly proposed legislation called the Consolidated Appropriations Act could raise the new $600 threshold required by the American Rescue Plan to $10,000, but the legislation has not been passed into law. If passed, the new threshold would apply to 2022 but still wouldn't change the amount of taxes owed.

"As a reminder, this is a rule about information reporting—when someone needs to tell the government and someone else about taxable [or potentially taxable] income," Hasen said. "It is not a rule about the actual tax owed, which hasn't changed. So, for example, even someone who receives payments below the threshold owes tax on them if they are otherwise taxable payments."

The rule doesn't apply to Venmo's personal payments or gifts, just goods and services that are received.