Paypal, Venmo, and 1099Ks: What does the change mean for musicians?

​Paypal and Venmo recently announced a change in procedure that affects people or companies that receive payments through Paypal or Venmo. Due to a change in tax law that became effective on January 1, 2022, Paypal and Venmo will send out 1099-Ks to any person or organization that receives $600 or more in a tax year through those platforms. (The prior threshold was $20,000.)
Who. The change will affect people or businesses that receive payment for goods or services through Paypal or Venmo.

What. Paypal and Venmo will send out 1099-Ks to people and businesses that received more than $600 in a tax year (for most people, that is a calendar year, ending on December 31st).
When. This change in the law is effective for tax years starting on or after January 1, 2022. That means you will not receive a 1099-K under this new procedure until 2023, for the 2022 tax year.

How will this change affect you?
This change does not affect how much taxable income you have. What it will do is provide the IRS with more information than they currently have about your taxable income.
If you are an artist or performer who accepts cash, checks, Paypal or Venmo payments or other forms of payment, all of those payments are part of your taxable income. In the past, there was no way for the IRS to automatically know about the amounts you received through the types of payments noted above. Now (starting for the 2022 tax year) the IRS will have the information sent to them by Paypal, Venmo, and other third-party payors that will be linked to your Social Security number or FEIN. This will make it harder for you to NOT report these payments. More people may have to file tax returns or face the possibility of having taxes assessed based on the 1099-K amounts, along with non-filing and other potential penalties.

Will you have to pay more tax?
That depends. If you have been tracking and reporting cash and Paypal/Venmo payments in the past, the new 1099 requirement will not increase your tax liability.

 Even if you have not always reported all of that income, your tax liability may not increase. Other recent changes in the tax law have greatly expanded the amount you need to make before you have to file a tax return. The “standard deduction” for 2022 is $12,950 for an individual, and $25,900 for a married couple. This means that a single person can make up to $12,950 in 2022 and not owe any tax.

The 1099 reporting will show the IRS what you received. It will not show what you had to spend to make that money. For a musician, you may have received $500 for a gig, but then paid out $400 of that to the other musicians in your band. That $400 is a deductible expense for you, but you will need to file a tax return to claim the deduction.

An additional note.
The IRS will be looking to enforce the 1099 requirements starting with the 2022 tax year. While the rule has been on the books a long time, the change in the law tells me that the IRS is going to get serious about enforcing it. This means that if you are a band leader and pay your musicians in cash, by Venmo or some other way, you will be responsible for preparing 1099s for everyone that you pay $600 or more during the year.
These additional requirements will mean that you need to find a way to keep track of how much money you receive, and who you pay.

Prepared by
Jon Olson, Executive Director Musicians’ Council on Fair Wages, Inc