IRS poised to deliver brutal shock to millions using PayPal, Venmo, and Cash App

Americans who receive payments via PayPal, Venmo, or Cash App are in for a potentially nasty wakeup call on their taxes this year as the IRS is warning that it will send out Form 1099-K for third-party payments totaling over $600 during 2022.

(Video Credit: Fox Business)

The IRS wants its pound of flesh and warned small business owners about the $600 threshold in November. That means that PayPal, Venmo, Cash App, and other third-party vendors will have to send users the form if their gross income exceeds $20,000 or they had 200 separate transactions within a calendar year.

“I think it will come as a shock out of nowhere that people are getting these,” Nancy Dollar, who is a tax lawyer at Hanson Bridgett, told FOX Business in an interview.

The move will ostensibly act as an extra tax on the middle class, impacting those making far less than $400,000. In a provision that the Biden administration claimed was to crack down on wealthy tax cheats, it will now go after the little guy as expected by many. Next up, those thousands of IRS agents just hired will be allegedly going after small businesses.

Democrats implemented the change in third-party transactions reporting in March of 2021 when they passed the American Rescue Plan without any Republican support.

https://twitter.com/TulsiGabbard/status/1601940815785312256

If a single transaction is over $600 or if multiple ones total over that amount it will trigger the form being sent out at the end of the year. This is the IRS cracking down on Americans not paying taxes on small transactions and it’s exactly what they claimed they would not do. The policy will directly impact small business owners and millions of Americans who make money online. Approximately one in four Americans make money by selling something online, renting their home, or using a digital platform to do work, according to the Pew Research Center.

It will almost certainly depress the gig economy.

“Everyone I know offloads old goods that they have on these platforms because it’s so easy,” Dollar reported. “Or they’ve been engaging in gig work on a very casual basis, and that affects gig workers as well who have been underreporting their income. I think it’s going to force people to either cut down on those activities or kind of take them more seriously and track them.”

The new rule allegedly only applies to payments received for goods and services transactions. It should not affect those using Venmo or PayPal to send a loved one a gift, pay your roommate rent, or reimburse a friend for dinner. Also excluded is anyone who receives money from selling a personal item at a loss.

“This doesn’t include things like paying your family or friends back using PayPal or Venmo for dinner, gifts, shared trips,” PayPal stated but it is unclear how they will determine exactly which items are taxable.

Business owners were already required to report that income on their taxes. The move is a crackdown on those who are avoiding doing so. Nevertheless, it will come as a shock to many, one they cannot ignore. Not reporting the income will more than likely trigger an 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 noted in a Q&A on its website. “The IRS will be able to cross-reference both our report and yours.”

The apps may request additional information from users prior to reporting transactions, and users may be asked to provide their Employer Identification Number (EIN), Individual Tax Identification Number (ITIN), or Social Security Number (SSN) if it’s not already on file.

“The 1099-K tsunami is coming in January,” Arshi Siddiqui, a former aide to Speaker Nancy Pelosi (D-CA), and a lobbyist for the Coalition for 1099-K Fairness told Bloomberg Tax. “We’re talking about millions of 1099-K’s going out, some of which are based on transactions that do not trigger tax liability.”

Democratic Reps. Chris Pappas (NH), Cindy Axne IA), Linda Sánchez (CA), and Steven Horsford (NV) are leading House legislation to raise the 1099-K reporting threshold to $5,000, calling it the Cut Red Tape for Online Sales Act.

Sens. Maggie Hassan (NH) and Kyrsten Sinema (AZ) are pushing parallel legislation in the Senate.

Carol Miller (R-WV) in the House and Rick Scott (R-FL) in the Senate are trying to revert the reporting threshold back to what it originally was, $20,000 and 200 transactions. They are calling it the Saving Gig Economy Taxpayers Act.

Rep. Michelle Steel (R-CA) and Sen. Bill Hagerty (R-LA) 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.

Another group of Republicans last week wrote a letter urging the IRS to delay the rule’s implementation until 2024.

Republicans are less than amused and launched a campaign against the change on Twitter last week.

“Biden’s new army of 87,000 IRS agents is not going after billionaires… They are coming after you. I hope you didn’t Venmo over $600 for Packers’ tickets this year,” Rep. Tom Tiffany (R-WI) tweeted.

“Americans receive $600 on Venmo. Politicians receive $40 million from Sam Bankman-Fried. Guess which one Democrats think is more of a problem?” Rep. Lance Gooden (R-TX) snarked.

Sen. Joni Ernst (R-IA) said, “Dems then: We’re going after billionaires! IRS now: If you got paid over $600 last year on Venmo, PayPal, or Zelle, you must report it next year!”

“Will the Democrats support deploying the 87,000 IRS agents to audit Ukraine or is the IRS just targeting middle America and their $600 Venmo transactions?” Rep. Marjorie Taylor Greene (R-GA) said via Twitter.

https://twitter.com/RepMTG/status/1598318200034410496

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