The Internal Revenue Service reminds taxpayers to report transactions of at least $600 made through payment networks like Venmo, Paypal and Cash App, as the agency seeks data regarding part-time employment and side gigs, a move critics called a government abuse.
In a recent explainer posted online, the IRS said that according to the American Rescue Plan Act of 2021, any payment made after March 11, 2021 that exceeds $600 must be reported. The target of the new reporting rule is small business owners and people working on the side or part-time for extra income. Previously, the reporting threshold was $20,000 and more than 200 transactions in a calendar year. But the modified rule applies to a single transaction.
“You should receive Form 1099-K by January 31 if, during the previous calendar year, you received payments for all payment card transactions (for example, debit, credit, or value cards stored) and third-party payment network settlement transactions above minimum reporting thresholds,” the agency said.
The reporting guidelines do not apply to non-commercial payments such as rent, vacation, food, or one-time transactions like selling something online. The 1099-K form will be sent by the payment platforms through which the transaction was made.
If a form is received in error, “contact the payment settlement entity (PSE) listed on the 1099-K form” or provide an explanation in the tax return, according to the agency.
Failure to report transactions on Form 1099-K could trigger an audit by the IRS since the agency receives a copy of the form.
Personal Finances of US Citizens
The American Rescue Plan Act of 2021 or COVID-19 Stimulus Package is a $1.9 trillion economic plan passed by Congress and signed into law by President Joe Biden on March 11, 2021. The final amended bill passed by the House with all but one of the Democrats voting in favor and all the Republicans against.
The recent threshold change, from prior transactions of $20,000 and $200 to $600 for a single transaction, was part of the bill, and it should identify Americans who do not report all of their gross income to the government.
Critics called the bill part of the government’s overreach on Americans’ personal finances and noted that such extreme tax measures would hurt small business owners and average citizens trying to make ends meet. This contradicts the president’s statement that greater tax enforcement would not affect low- and middle-income Americans.
A survey by the Coalition for 1099-K Fairness, founded by eBay, Etsy, Mercari, OfferUp, Poshmark, Reverb and Tradesy, found that 86% of occasional sellers made less than $5,000 in gross revenue from items sold in 2021. Forty-seven percent of respondents said they were unaware of new IRS reporting requirements.
The group said the guidelines would cause unnecessary confusion amid conflicting information, with many people forced to consult expensive tax advisers. Even those who owe no taxes will be forced to declare their income while online marketplaces will be required to collect full social security numbers from small vendors.
Of the 40% who said new mandates were creating economic hardship, 74% said they were selling online to meet necessary personal expenses. Sixty-nine percent of respondents said they would consider stopping selling online due to new measures.
“There is a huge tax gap in the United States estimated at $7 [trillion] over the next 10 years in terms of reduced tax revenue from what we think is due,” said Treasury Secretary Janel Yellen in an interview with CNBC last year. “He comes from places where income information is opaque and can be hidden.”
Regarding the collection of more personal financial information from taxpayers’ bank accounts, Yellen said, “These are just a few pieces of information about individual bank accounts,” and confirmed that the IRS has the ability of such a review.
She added that the additional information will help the IRS target and audit “high-income and wealthy individuals who may be concealing their transactions and income.”
#IRS #warns #Americans #report #transactions #payment #processors #risky #audit