The Internal Revenue Service is reminding taxpayers to report transactions of at least $600 made through payment networks such as Venmo, Paypal and Cash App, as the agency seeks to obtain data on part-time employment and side jobs, a move critics have called excessive authority.
In a recent explanation posted online, the IRS said that under 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 who work side jobs or part-time jobs for extra income. Previously, the reporting threshold was $20,000 and more than 200 transactions in a calendar year. But the amended rule applies to a single transaction.
“You should receive Form 1[ads1]099-K by January 31 if, in the previous calendar year, you received payments from all payment card transactions (eg, debit, credit, or stored value cards), and in third-party payment network settlements, transactions above the minimum reporting limits,” the agency said.
The reporting guidelines do not apply to non-commercial payments such as rent, holidays, food or one-off transactions such as selling something online. Form 1099-K will be sent by the payment platforms through which the transaction was made.
If a form is received in error, “contact the Paying Entity (PSE) listed on the Form 1099-K” or provide an explanation on the tax return, according to the agency.
Failure to report transactions on Form 1099-K can trigger an audit by the IRS since the agency receives a copy of the form.
Personal Finance for US Citizens
The American Rescue Plan Act of 2021 or the COVID-19 Stimulus Package is a $1.9 trillion economic plan that was passed by Congress and signed into law by President Joe Biden on March 11, 2021. The final amended bill was passed by the House with all , except one , Democrats voting for it, and all Republicans against it.
The recent threshold change, from the previous $20,000 and 200 transactions, to $600 for a single transaction, was part of the bill and is expected to identify Americans who do not report the full extent of their gross income to the authorities.
Critics have called the bill part of a government overreach into Americans’ personal finances, noting 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 lower- and middle-income Americans.
A survey conducted by the Coalition for 1099-K Fairness—founded by eBay, Etsy, Mercari, OfferUp, Poshmark, Reverb, and Tradesy—found that 86 percent of casual sellers earned less than $5,000 in gross revenue from items sold in 2021. Forty-Seven percent of respondents said they were not aware of the tax authorities’ new reporting requirements.
The group said the guidelines will cause unnecessary confusion amid conflicting information with many forced to consult expensive tax consultants. Even those who owe no tax will be forced to report their income, while online marketplaces will be required to collect full social security numbers from small sellers.
Of the 40 percent who said the new mandates create financial hardship, 74 percent said they sell online to cover necessary personal expenses. 69 percent of respondents said they would consider stopping selling online because of new measures.
“There is a huge tax gap in the US estimated at $7 [trillion] over the next 10 years in the form of a short drop in tax collection to what we believe is owed,” so Finance Minister Janel Yellen in a CNBC interview last year. “It comes from places where the information about income is opaque and can be hidden.”
As for collecting more personal financial information about taxpayers’ bank accounts, Yellen said, “It’s only a few pieces of information about individual bank accounts,” confirming that the IRS has the capacity for such scrutiny.
She added that the additional information will help the IRS target and conduct audits of “high-income and wealthy individuals who may be hiding their transactions and income.”