-2 C
Munich
Saturday, January 28, 2023

What you need to know about the new IRS rule requiring taxpayers to file business payments over $600

Must read


Starting this year, Americans will have to report Venmo, PayPal and other third-party payment app business transactions over $600 to the IRS. 

The Biden Administration’s American Rescue Plan requires taxpayers to file a 1099-K for ‘gross payments for goods or services that exceed $600.’ 

The earnings were already taxable, so the law is aimed at codifying how they’re reported to crackdown on fraud.    

More importantly, the rule is aimed specifically towards business transactions, so if you’re sending money to a friend, selling off something online or collecting a one-time payment, the new rule won’t apply to you. 

Taxpayers will have to report Venmo, PayPal and other third-party payment app business transactions over $600 to the IRS in their 2021 tax returns 

Taxpayers who fall within the new law will receive a 1099-K form from each of the third-party payment companies they conducted business through

Taxpayers who fall within the new law will receive a 1099-K form from each of the third-party payment companies they conducted business through 

When Does a $600 Venmo or PayPal payment get reported to the IRS? 

Under the Biden Administration’s American Rescue Plan, taxpayers are required to file a 1099-K for ‘gross payments for goods or services that exceed $600.’

This means that anyone who receives more than $600 as a business transaction through third-party payment apps like Venmo and PayPal will need to report the earnings as taxable income. 

People who use the apps to sell a personal item or wire money to family and friends will not be subject to reporting the transaction. 

The applicable transactions will be documented by the third-party payment platform, and the taxpayer will receive a 1099-K form from each of the companies they conducted business through. 

The form shows how much the business account has made through its services, as well as a breakdown on the monthly earnings. 

The payment platforms have urged customers to keep copies of their transaction and review the forms to ensure the amount is correct as inaccuracies could lead to an audit by the IRS.  

On Tuesday, the IRS sent out a reminder to taxpayers that the reporting threshold for 1099-K forms would be lowered from $20,000 to $600. 

The number of transactions that trigger receiving a form will also be lowered from 200 to 1. 

According to the IRS, taxpayers who fall within the new law will receive a 1099-K form from each of the third-party payment companies they conducted business through. 

Anyone who believes they received the form by error is encouraged to contact the payment company for a correction. 

Worries have risen over the tax change, fueled by Republican lawmakers who suggested individuals who earned cash outside business transactions could be affected. 

‘If you sold a couch, re-sold tickets at the price you paid, or just did some extra work on the side, you could trigger greater scrutiny from the Internal Revenue Service (IRS),’ Republicans on the House Ways and Means Committee wrote in a statement earlier this week condemning the change. 

While those who did ‘work on the side’ would have to report their earnings if it exceeded $600, as it falls within the realm of taxable income, taxpayers who earned cash by selling a couch or tickets would not be affected. 

PayPal has recently tried to quell these fears by reiterating that average use of their platform, or Venmo’s, would not subject taxpayers to IRS scrutiny. 

‘This doesn’t include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips,’ PayPal said in a statement. 

The company urged users who get a 1099-K to make sure they accurately report their earnings because errors could lead to an IRS audit. 

‘For the 2022 tax year, you should consider the amounts shown on your Form 1099-K when calculating gross receipts for your income tax return,’ PayPal said. ‘The IRS will be able to cross-reference both our report and yours.’ 

The new policy is aimed at closing the tax gap by bringing in $8.4 billion from 2013 to 2021, according to the Joint Committee on Taxation. 

It was put forth as a way to help pay for the $3.5 trillion American Rescue Plan, President Joe Biden’s signature social and climate spending program. 

Tax experts have raised concerns that the IRS is not equipped to handle the estimated 20 million new 1099-K forms expected after January, as the agency already faces big delays during tax season.

Earlier this year, President Biden signed into law the Inflation Reduction Act, which allotted for the hiring of 87,000 new IRS agents. 

Professionals have estimated the number of 1099-Ks alone that could be doled out is as high as 20 million and cause major delays at the IRS

Professionals have estimated the number of 1099-Ks alone that could be doled out is as high as 20 million and cause major delays at the IRS 

Already, lawmakers have introduced bipartisan legislation to reverse the change.

Democratic Reps. Chris Pappas, of New Hampshire, Cindy Axne, of Iowa, Linda Sánchez, California, and Steven Horsford, of Nevada, are leading House legislation to raise the 1099-K reporting threshold to $5,000, called the Cut Red Tape for Online Sales Act.

Sens. Maggie Hassan, of New Hampshire., and Kyrsten Sinema, of Arizona, are leading parallel legislation in the Senate.

Republicans Carol Miller, of West Virginia., in the House and Rick Scott, of Florida, in the Senate are leading a proposal to revert the reporting threshold back to what it was – $20,000 and 200 transactions – called the Saving Gig Economy Taxpayers Act.

US Reps Michelle Steel, of California, and Sen. Bill Hagerty, Louisiana, are leading the Stop the Nosy Obsession with Online Payments (SNOOP) Act, a similar bill that would revert reporting requirements back to what they were.



Source link

- Advertisement -

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisement -

Latest article