PayPal, Venmo, and other cash app users may face higher taxes
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President Joe Biden’s administration introduced a tax code change earlier this year that will affect those who use services like Venmo, Etsy, StubHub and Airbnb to raise money. The tax change should ensure people report all their income to the Internal Revenue Service and will soon require payment app providers to issue users with a 1099-K for all business transactions if they total more than 600 US dollars. dollars per year.
Before the change, the app only had to issue the form if a user had more than 200 business transactions totaling at least $20,000 for the year.
The new requirement means millions of Americans with small businesses or side jobs will face additional tax forms and potentially face higher taxes. Implemented as part of America’s bailout plan, the IRS’ new tax policy is expected to generate about $8 billion in additional tax revenue over a 10-year period.
But the policy has come under scrutiny by people who accuse Biden of breaking his promise to cut taxes on Americans earning less than $400,000 a year. “This is where all the low-income people are,” Grover Norquist, the president of Americans for Tax Reform, told the New York Times. “Billionaires don’t have side jobs where they make money by renting out their room.”
The changes may create confusion for taxpayers running small businesses that mix personal and business transactions in the payments apps, meaning the 1099-K forms may reflect more income than they actually earned that year . Those selling used items could face higher taxes if they can’t find old receipts showing how much the item has been depreciated since purchase.
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Last week, Sen. Rick Scott (R-FL) proposed legislation to block the IRS tax expansion to reverse the increase in financial transactions reported through the payment apps. “The Biden administration is also changing IRS standards to begin tracking every financial transaction Americans make over $600, including CashApp, Venmo and PayPal,” Scott told The Times. “This is an outrageous violation of American privacy. We see that in communist China.”
The requirement may cause an additional headache for the IRS, which still faces 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 during the IRS continues to review and process corrections to unemployment benefit exclusions and systematically issue appropriate refunds and notices to taxpayers on tax returns for tax year 2020.”
Despite existing delays, the IRS warned taxpayers last month to ensure they have their financial documents ready in advance of filing their tax returns next year.
On its website, the IRS said, “A little extra caution could save people additional time and hassle associated with filing an amended tax return.”
Arshi Siddiqui, a partner at law firm Akin Gump, representing a consortium of companies scrambling 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’re going to see a tsunami of 1099s going to confused people,” Siddiqui told the outlet.
A Treasury Department spokesman also told the Times that “The Treasury Department and the IRS are focused on finding a solution quickly to address any challenges taxpayers may face this filing season.”
