The Internal Revenue Service is advising tax filers to prepare to record transactions of at least $600 that are done through so-called “third-party” facilitators such as Venmo and PayPal.
Form 1099-K must be filed by American business owners who receive payments of $600 or more annually through apps such as Zelle, Cash App, Venmo, and PayPal PY, -0.83%.
The IRS is interested in transactions involving part-time jobs, side gigs, and selling items, according to the agency. According to accountants, the rule does not apply to noncommercial payments such as reimbursing someone for meals or rent or other one-time transactions such as selling an outdated piece of furniture.
Before this year, the criteria for filing a Form 1099-K report was at least 200 transactions totaling an aggregate of at least $20,000.
When Congress enacted the American Rescue Plan Act of 2021, a provision was included that lowered the reporting threshold to a single transaction over $600. The Biden administration expects that by reducing the threshold, the move will crack down on Americans dodging taxes by not reporting the full extent of their gross income.
The concept was proposed as a method to help fund a $3.5 trillion social expenditure bill that would invest in climate programs, child care, and education. Tommy Lucas, an Orlando, Fla.-based certified financial adviser, told CNBC that filers must include any sum that is reported on Form 1099-K as part of their company revenue.
Since the IRS obtains a copy of Form 1099-K immediately from the third-party payment facilitator, failure to comply may result in an audit.
But the provision has been met with pushback from sites like Etsy ETSY, +0.27% and eBay EBAY, -0.42%, 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.”
President Joe Biden signed the Inflation Reduction Act earlier this year, which includes a clause that will result in the hiring of 87,000 additional IRS agents.
The nonpartisan watchdog Joint Committee on Taxation said it estimates that between 78% and 90% of the estimated $200 billion that the IRS will receive as a result of the boosted personnel will come from small firms. President Biden and the Democratic Party have stated that Americans earning less than $400,000 yearly will not have to pay a cent extra in taxes.
The Joint Committee on Taxation, however, contradicts this, stating that between 4% and 9% of the money collected will come from enterprises with annual incomes above $500,000.
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