The Internal Revenue Service is reminding taxpayers to report transactions of at least $600 made through payment networks like Venmo, Paypal and Cash App as the agency seeks data related to part-time employment and side gigs, a move critics have called the government’s overreach.
In a recent explanation posted online, the IRS said that according to the American Rescue Plan of 2021, any payments after March 11, 2021 that exceed $600 must be reported. The target of the new reporting rule is small business owners, people who work on the side or work part-time for extra income. Earlier, the reporting minimum was $20,000 and more than 200 transactions during a calendar year. But the amended rule applies to a single transaction.
You must receive Form 1099-K by January 31 if, in the previous calendar year, you received payments from all payment card transactions (for example, debit, credit, or stored value cards), and a third-party payment network settlement transactions above the minimum reporting threshold,” the agency said.
The reporting guidelines don’t apply to non-commercial payments like rent, vacation, or food, or one-time transactions like 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 Payments Settlement Entity (PSE) listed on Form 1099-K” or provide an explanation on the tax return, according to the agency.
Failure to report the transactions on Form 1099-K may lead to an audit by the IRS because the agency receives a copy of the form.
Personal Finances of American Citizens
The American Rescue Plan of 2021 or the 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. Democrats vote for it and all Republicans vote against it.
The recent change in the bottom line, from the previous $20,000 and $200 transactions, to $600 for a single transaction, was part of the bill Americans who don’t report to the government are expected to specify the full range of their gross income.
Critics called the bill part of the government’s overreach in Americans’ personal finances, and noted that such extreme tax measures would hurt small business owners and ordinary citizens trying to make ends meet. This contradicts the president’s statement that higher taxes would not affect low- and middle-income Americans.
A survey by the Coalition of 1099-K Fairness — founded by eBay, Etsy, Mercari, OfferUp, Poshmark, Reverb and Tradesy — found that 86 percent of occasional sellers generated less than $5,000 in total revenue from items sold in 2021. Forty – Seven percent of respondents said they were not aware of the IRS’s new reporting requirements.
The group said the guidelines would cause unnecessary confusion amid conflicting information while forcing many to consult expensive tax advisors. Even those who owe no taxes will have 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 economic hardship, 74 percent said they sell online to cover needed personal expenses. Sixty-nine percent of survey respondents said they would consider stopping selling online due to the new measures.
There is a huge tax gap in the United States of about $7 [trillion] over the next 10 years in terms of a short drop in tax collection to what we think is due,” He said Treasury Secretary Janelle Yellen in an interview with CNBC last year. “It comes from places where information about income is not transparent and can be hidden.”
On collecting more personal financial information about taxpayer bank accounts, Yellen said, “It’s just a few bits of information about individual bank accounts,” and emphasized that the IRS has the capacity for such an audit.
She added that the additional information would help the IRS target and conduct audits on “high-income and wealthy individuals who may be concealing their transactions and income.”
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