President Joe Biden’s administration implemented a change to the tax code earlier this year that impacts those who use services like Venmo, Etsy, StubHub, and Airbnb to collect money. The tax change was meant to ensure people are reporting all of their income to the Internal Revenue Service and will soon require payment app providers to issue users a 1099-K form for all business transactions if they total more than $US600 ($833) per year.
Prior to the change, the app would only be required to issue the form if a user had more than 200 business transactions totaling at least $US20,000 ($27,764) for the year.
The new requirement means millions of Americans with small businesses or side hustles will face additional tax forms and potentially pay higher taxes. The I.R.S’s new tax policy was implemented as part of the American Rescue Plan and it is projected to raise roughly $US8 ($11) billion in added tax revenue over ten years.
However, the policy has faced scrutiny from individuals who accuse Biden of breaking his promise to cut taxes for Americans making less than $US400,000 ($555,280) per year. “It’s all low-income people here,” Grover Norquist, the president of Americans for Tax Reform, told The New York Times. “Billionaires don’t have side gigs where they make money renting their room out.”
The changes may create confusion among taxpayers running small businesses who mix personal and business transactions on the payment apps, meaning the 1099-K forms can reflect a higher income than they actually earned this year. Those who sell used items could face higher taxes if they cannot locate old receipts showing how much the item depreciated since they purchased it.
Last week, Sen. Rick Scott (R-FL) proposed legislation to block the IRS tax expansion to reverse the increase in financial transactions reported on the payment apps. “The Biden administration is also changing I.R.S. standards to begin tracking every financial transaction Americans make in excess of $US600 ($833), including on CashApp, Venmo, and PayPal,” Scott told The Times. “It’s an outrageous violation of Americans’ privacy. It’s stuff we see in Communist China.”
The requirement may cause additional headaches for the I.R.S. which is still facing setbacks as it works to clear a backlog of millions of old tax returns, and according to the Taxpayer Advocate Service, many taxpayers are “still waiting for pandemic relief benefits as the I.R.S. continues to review and process unemployment compensation exclusion corrections and systemically issue corresponding refunds and notices to taxpayers on tax year 2020 returns.”
Despite existing delays, the I.R.S. warned taxpayers last month to ensure they have their financial documents ready in the lead up to filing their tax returns next year.
On its website, the I.R.S. said, “A little extra caution could save people additional time and effort related to filing an amended tax return.”
Arshi Siddiqui, a partner at the law firm Akin Gump is representing a consortium of businesses striving to change the new tax requirements told The Times she expects at least 50 million taxpayers to be affected by the new law implemented in the American Rescue Plan.
“If Congress doesn’t act, we’ll see a tsunami of 1099s going out to people who will be confused,” Siddiqui told the outlet.
A Treasury Department spokesperson also told The Times that the “Treasury and the I.R.S. are laser-focused on quickly identifying a solution to address any challenges taxpayers may face this filing season.”