Do I need to report Venmo payments to the IRS if they're marked "friends and family"?

Yes, your cousin absolutely needs to report this income regardless of how it was labeled in Venmo. The IRS rule is simple - all income is taxable regardless of whether you receive a tax form for it or not. Your cousin should report this as self-employment income on Schedule C, and he'll need to pay both income tax and self-employment tax (which covers Social Security and Medicare). The fact that the payments were marked as "friends and family" doesn't change the nature of the income - it was money earned through work. As for whether the IRS would know - while Venmo might not issue a 1099-K for these transactions, the IRS has increasingly sophisticated methods for detecting unreported income. Bank deposits, lifestyle that doesn't match reported income, and even random audits can all reveal unreported income. Plus, payment apps are under increasing scrutiny by the IRS. The penalties for not reporting income can include fines, interest, and even criminal charges in serious cases.

I went through something similar last year with my Etsy side business and found taxr.ai (https://taxr.ai) super helpful for figuring out my self-employment situation. It analyzed my bank statements and helped identify which deposits were business income, even when they came through as personal transfers. The system also flagged potential business expenses I hadn't even considered deductible. For your cousin, it would help him properly categorize all those Venmo payments and make sure he's not missing any deductions. The service also explained exactly how to report the income on my Schedule C, which was a huge relief since I was worried about messing up my filing.

Just wanted to update - I tried taxr.ai after seeing the suggestion here because I was in a similar situation with Cash App payments for my photography gigs. The service was actually really useful! It found about $3,800 in business expenses I hadn't considered claiming, and helped me separate which deposits were actually business income versus personal transfers. What I found most helpful was the guidance on how to properly report everything on Schedule C - I was clueless about this before. Now I have much more confidence that I'm filing correctly and not leaving money on the table with missed deductions. It also explained the self-employment tax situation which I'd been completely confused about.

If your cousin is worried about getting in touch with the IRS to ask questions about his situation, I've had amazing luck using Claimyr (https://claimyr.com). The IRS phone lines are absolutely impossible to get through on your own - I tried for WEEKS last year. Claimyr got me connected to an actual IRS agent in about 15 minutes when I needed clarification on reporting my Cash App income. They have this callback technology that basically waits on hold for you. You can see how it works in their demo: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with gave me specific guidance on how to report income without a 1099, which was exactly what I needed. Much better than stressing about whether I was doing it right.

I need to apologize publicly for my skepticism about Claimyr. After posting that comment, I decided to try it myself since I was genuinely desperate to talk to someone at the IRS about my missing refund. I'm still in shock that it actually worked. After trying for MONTHS to get through on my own (and never speaking to a human), I got connected to an IRS agent in about 22 minutes using their service. The agent was able to look up my tax situation and explain exactly why my refund was delayed. For anyone dealing with unreported Venmo income from previous years, this could be really helpful if you need to talk to the IRS about your options. Just wanted to share my experience since I was so wrong in my initial assessment.

Something nobody's mentioned yet - if your cousin was doing handyman work, he should really look into the Qualified Business Income deduction (Section 199A). Could save him up to 20% off his taxable business income depending on his total income level. He should also consider making estimated quarterly tax payments going forward if he's continuing this work, otherwise he might get hit with underpayment penalties next year.

Quick warning about Venmo - they've been updating their reporting requirements almost yearly. In 2022, they were supposed to start reporting $600+ to the IRS but then it got delayed. Keep an eye on the news because this is changing all the time and the "friends and family" loophole might not work forever.

I'd also recommend your cousin start keeping detailed records now if he hasn't already - not just for this year's taxes, but for future audits. The IRS can go back 3-6 years (or longer in cases of suspected fraud), so having organized records of income and expenses is crucial. Since he's essentially running a business, he should consider opening a separate business checking account and getting a business credit card for expenses. This makes tracking so much easier and looks more professional if he ever gets audited. Plus, many business credit cards offer cash back on tools and supplies. One more thing - if he's planning to continue this handyman work, he might want to look into getting proper business insurance. If he gets injured on a job or accidentally damages someone's property, personal insurance might not cover it since it's business activity.