The Internal Revenue Service is reminding tax filers to prepare to report transactions of at least $600 that are made through so-called “third-party” facilitators such as Venmo and PayPal.
The agency on Tuesday posted an explainer warning American business owners earning $600 or more per year on payments that are received through apps such as Zelle, Cash App, Venmo, and PayPal
to file a tax form known as Form 1099-K.
The IRS is interested in transactions involving part-time work, side gigs, and selling goods, according to the agency.
The rule does not apply to noncommercial payments like reimbursing someone for food or rent or other one-off transactions such as selling an old piece of furniture, according to accountants.
Before this year, the threshold for filing a Form 1099-K report was at least 200 transactions totaling an aggregate of at least $20,000.
When Congress passed the American Rescue Plan Act of 2021, it included a provision that reduced the reporting threshold to a single transaction over $600.
The Biden administration hopes that by reducing the threshold, the measure will crack down on Americans evading taxes by not reporting the full extent of their gross income.
The proposal was offered as a way to help pay for a $3.5 trillion social spending bill that would invest in climate programs, child care and education.
Tommy Lucas, an Orlando, Fla.-based certified financial planner, told CNBC that filers must include any sum that is reported on Form 1099-K as part of their business income.
Failure to do so could trigger an audit since the IRS obtains a copy of Form 1099-K directly from the third-party payment facilitator.
But the provision has been met with pushback from sites like Etsy
who joined with smaller retailers to create the “Coalition for 1099-K Fairness,” which they say is aimed at protecting “casual online sellers and microbusinesses from unfair tax and privacy burdens.”
Earlier this year, President Joe Biden signed into law the Inflation Reduction Act, which includes a provision that will lead to the hiring of 87,000 additional IRS agents.
The nonpartisan watchdog Joint Committee on Taxation said it anticipates that between 78% and 90% of the estimated $200 billion that the IRS will collect as a result of the bolstered workforce will come from small businesses.
President Biden and the Democratic Party have insisted that Americans earning less than $400,000 annually would not have to pay a cent more in taxes.
But the Joint Committee on Taxation disputes this, saying that between 4% and 9% of the money collected will come from businesses that earn above $500,000 a year.