Coming to a Chinatown Near You: Venmo QR Codes

Written by mhl5208 on . 3 Comments

What’s the first thing you think of when you hear the word Chinatown? As a frequent patron of Chinatown, I think of amazing food, rude service, and cash only. Although the food and the service are not going away anytime soon, the cash only feature may soon be a relic of the past. As a patron of Chinatown, that’s hard for me to believe because Chinatown is one of the most resistant enclaves when it comes to modernization by incorporating new payment methods, like credit cards and Near-Field-Communication (“NFC”) mobile payments. For those who wonder why, the reason is tax evasion. Chinatown embraces the cash only model because it enables tax fraud and underreporting of revenue. But, since COVID, many Chinatown establishments like coffee shops or even sporting halls have started to embrace electronic payments, especially Venmo through the Business Profile.

What is the Business Profile?

In 2016, Venmo introduced the Business Profile feature. With this feature, businesses can create a professional profile page to receive payments for services provided or goods sold. Business Profiles are useful for businesses because they can contain information like the business’s contact information and a description of the service provided, or the line of products for sale. Venmo also redesigned the search function in its app. Users can now switch between “People” and “Business” when they conduct a search for a particular Venmo tag.

Creating a Business Profile is extremely easy. Anyone with an individual Venmo account can create one. In fact, it only takes 4 taps on a phone to reach the setup.

  • 1 tap for Venmo, the app.
  • 1 tap on your own profile.
  • 1 tap on the down arrow drop down.
  • 1 tap on the “Create a business Profile +”

Venmo Fees

Small businesses should be wary of the seller transaction fee. Individual profiles and payments have been free to the users since the inception of Venmo. For example, if you Venmo a friend $50, $50 is withdrawn from your debit account, and $50 is deposited in your friend’s Venmo account. When your friend transfers the $50 from their Venmo account into their debit account, the whole $50 is transferred. There are no fees for usage nor transfer.

 

However, Business profiles are subject to a “low fee for every payment . . . that’s over a dollar.” Venmo calls this the seller transaction fee. The standard rate is “1.9% + $0.10 of the payment.” As an example, if a customer sends $100 to a Business Profile, the business receives $98, and Venmo receives $2. The two-dollars represents the combination of $1.90 (1.9% of $100) and 10 cents of the payment.

 

Now that you have set up your Venmo Business Profile, you can start receiving business income for your services provided or goods sold. You may notice an increase in your revenue because customers can forget their wallets, but they will never forget their phones. This is reflected in the statistics, too. In 2022, Venmo’s total payment volume was 244 billion, up from 230 billion in 2021. How much of that is designated as business remains unclear, but even a fraction, like one tenth, of 244 billion is still a significant sum of money. You can even receive tips on Venmo if you elect to turn on the “Tipping” feature. Unlikely though because no one tips unless they are seen doing so. A year goes by and your revenue skyrockets. Then, tax season comes. Now it’s time to report your income earned via Venmo.

 

2022 Revision to Reporting Income Earned via Venmo

In 2021, Congress passed the American Rescue Plan. Although the plan is known by most Americans for giving us all the “stimmy checks” that we spent on speculative retail investing informed by r/WallStreetBets, it also included an important change for “third party settlement organizations.” A third party settlement organization is just a big word for UberEats, Doordash, Airbnb or Venmo. In simple terms, before Jan 1, 2023, you must report your income received on the Venmo platform if you received more than $20,000 and 200 transactions. On and after Jan 1, 2023, you must report your income if you received more than $600, regardless of the number of transactions.

Venmo has been particularly aggressive with making sure a transaction is a business transaction instead of a personal one. Since the change, Venmo has been flagging any transaction as a business transaction for the receiver, if the sender transferred the money with “Purchase Protection,” an anti-fraud feature.

 

The 1099K Form

So, if your side hustle produces over $600 of income in 2023, you must fill out Form 1099K and report your income to the IRS. Even if you didn’t receive a 1099K, you are still obligated to report the business income on your tax return. However, that’s unlikely, because if you have a Business Profile, Venmo will send you the 1099K because Venmo also needs to report the amount of money that passed through its system. In fact, some business owners were notified of the new law only because they received a notice from Venmo asking them to confirm their taxpayer information, such as name and Social Security number. With most Americans unaware of the change, H&R Block predicted the influx of 1099K forms will surely produce widespread chaos and confusion for the 2024 tax season.

 

The Congressional Budget Office (“CBO”) predicted that the 2022 change to the tax law would bring in over 1.1 billion of tax revenue in 2023. Although e-commerce payment systems are definitely affected by the change, they are not necessarily the target of the change. Since COVID19, many Americans are turning to side hustles like UberEats and DoorDash to supplement their 9-to-5 wage earnings. The change reflected the IRS’ suspicion that the increase in side-hustle money is simply not being reported. With so much scrutiny on business models like Venmo, make sure you accurately report your revenue via Venmo this coming tax season.

 

SOURCES:

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