Can You Use Venmo to Pay Contractors?

In just the past few years, more and more payment options have appeared for goods and services. And while PayPal was launched in 1998 (giving it almost 30 years in action), other platforms are just starting to build a name for themselves in business. Some of which are apps like Cash App, and the star of today’s show: Venmo.

Both of these platforms initially focused on consumer use, for fast payments between users and to pay businesses for their goods and services. Eventually, it evolved to businesses paying other businesses and contractors through the platform, too. 

Now, this, in itself, is fine. Paying contractors using Venmo isn’t illegal. But, there are a few things to consider when using Venmo IF you don’t want an unexpected bill from the IRS or 1099 for personal transactions via Venmo.

Venmo Personal vs. Venmo Business Accounts

The problem that often comes with using Venmo for paying contractors isn’t the platform—it’s how it’s used. Some businesses are tempted to use the Personal version of Venmo to avoid fees, which isn’t a good way to do business. 

Sure, you’re avoiding fees, but you’re also commingling your business and your personal accounts, making your bookkeeping convoluted at times.

With the IRS paying more attention to transactions through Venmo and similar platforms, it increases the potential for being 1099’d for personal transactions that shouldn’t be, because there’s no clear separation.

It’s also important to note that Venmo (the company) does not allow business transactions on personal accounts; they push for the use of a business account.

As for Venmo’s business account, it’s not a bad option. It keeps your accounts separated (no commingling) and it collects fees and taxes, if needed. 

Should You Use Venmo to Pay Your Contractors?

Just because you can, doesn’t mean you should. My recommendation is to use something other than Venmo for collecting payment (and, if Venmo is used, then there should be a business Venmo used strictly for business transactions). 

Venmo isn’t the best place to collect transactions—even if their receiving fee (1.9%+$0.10 USD for every payment received) is more attractive than other platforms like HoneyBook, Stripe, Dubsado, etc.

When it comes to paying contractors, Venmo business doesn’t automatically generate 1099 forms for contractor payments, making it harder to comply with IRS requirements. On that same note, it also doesn’t offer many accounting integrations to help maintain proper financial records.

This makes your bookkeeping more complex and error-prone (and having accurate bookkeeping is an absolute MUST). 

There’s also minimal dispute resolution and buyer protection compared to other business-focused processors. If issues arise with contractor work or payments, you have fewer options to get your money back.

What Else, Besides Venmo, Can You Use to Pay Your Contractors?

Other options for paying your contractors include:

• Direct bank transfers/ACH payments (often fewer fees)
• Business Checks
• Dedicated contractor payment platforms like Gusto, QuickBooks Payments, or Bill.com
• Business credit cards for additional expense tracking

Whatever you choose, your bookkeeper can help you stay on track and organized—it’s important to note, though, that a bookkeeper is only responsible for the information provided to them and NOT legally responsible for your actions and use of a platform.

Which is why it’s even more important to ensure you’re using accounts appropriately!!

Not sure which platform is right for you? Need help staying organized and keeping your books up to date? Book a call!