The Internal Revenue Service (IRS) is warning American tax filers that they will need to report their individual transactions made over third party apps on a Form 1099-K if the transactions are worth more than $600.
The agency is reportedly targeting payments that indicate “part-time work, side gigs, and selling goods,” but not noncommercial payments that involve paying a friend for food or rent, according to The New York Post.
The previous threshold for reporting earnings on a 1099-K was at least 200 transactions and an aggregate of at least $20,000.
The change, seen as another Democratic legislative achievement of the Biden administration, came with Congress’ passage of the “American Rescue Plan Act of 2021,” which reportedly lowered the threshold to $600 in the hopes of penalizing Americans for evading to pay their “fair share.”
The plan is also a way to pay for the $3.5 trillion social spending bill that passed last year coupled with the infrastructure bill, enabling the government to invest in climate programs, child care and education.
Third party payment processors, such as Venmo, Zelle, PayPal, eBay and Airbnb are already required by law to begin keeping track of their users’ transactions.
The Coalition for 1099-K Fairness, founded by eBay, Etsy, Mercari, OfferUp, Poshmark, Reverb and Tradesy, is working to fight back against the change, “advocating for Congress to urgently fix Section 9674 of the American Rescue Plan Act of 2021 to raise the 1099-K online sales reporting threshold,” the website states.
Toward the end of the summer, Democrats supported the so-called Inflation Reduction Act, a $740 billion package for tax reform, healthcare, and climate programs. The act includes $80 billion to the IRS, over half of which will go toward “enforcement-related funds and 87,000 new agents,” according to The New York Post.
The funds will be used “to determine and collect owed taxes, to provide legal and litigation support, to conduct criminal investigations (including investigative technology), to provide digital asset monitoring and compliance activities,” according to the bill.
Congressional Republicans have also questioned why the agency is stockpiling $700,000 worth of ammo in addition to the five million rounds of ammo the agency already has.
The IRS is also demanding that financial institutions report their clients’ transactions made over $600, American Pigeon previously reported in May 2021. The initial policy as outlined in the Bank Secrecy Act was that institutions were required to report every transaction over $10,000 that moved in, out, and within the firm.
But when Department of Treasury released its May 2021 General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, it explained that the change in its policy was because the federal government was missing out on an estimated $166 billion per year as a result of institutional misreporting.
Democrats are insisting that the new provision will not hurt small business owners or those making under $400,000 a year, but the nonpartisan watchdog Joint Committee on Taxation reportedly said that between 78% and 90% of what the IRS will collect will come from small businesses. 4% and 9% of the revenue collected will come from those making over $500,000.
