The Internal Revenue Service is advising taxpayers to prepare to report transactions of at least $600 made through so-called “third-party providers” like Venmo and PayPal.
The agency released a statement Tuesday warning American business owners who make $600 or more a year from payments received through apps like Celle, Cash App, Venmo and PayPal to file a tax form called a Form 1099-K.
The IRS is interested in transactions that involve part-time work, side jobs and the sale of goods, according to the agency.
According to accountants, the rule doesn’t apply to non-commercial payments like reimbursements for food or rent, or other one-time transactions like the sale of an old piece of furniture.
Prior to this year, the threshold for filing a Form 1099-K report was at least 200 transactions with a total value of at least $20,000.
When Congress passed the American Rescue Plan Act of 2021, it included a provision that lowered the reporting threshold to a single transaction over $600.
Applicants receive Form 1099-K from third-party payment processors. A copy of the form is also sent to the IRS.Getty Images/iStockphoto
The Biden administration hopes that by lowering the threshold, the measure will target Americans who evade taxes by not reporting the full extent of their gross income.
The proposal was offered as a way to pay a $3.5 trillion social spending bill to invest in climate programs, childcare and education.
Tommy Lucas, a certified financial planner based in Orlando, Fla., told CNBC that applicants must report any amount reported on a 1099-K as part of their business income.
Failure to do so could trigger an audit as the IRS receives a copy of the 1099-K form directly from the third party payment agent.
The $600 threshold is intended to prevent tax evasion.Thiago Prudencio/SOPA Images/Shu
But the provision has been rejected by sites like Etsy and eBay, which have joined forces with smaller retailers to form the “Coalition for 1099-K Fairness,” which they say aims to “protect occasional online sellers and micro-businesses from unfair taxes and privacy to protect burdens.”
Earlier this year, President Joe Biden signed the Anti-Inflation Act into law, which includes a provision that will result in the hiring of 87,000 additional IRS officers.
Critics said the provision targets small businesses that make money from part-time jobs on the side.Thiago Prudencio/SOPA Images/Shu
The impartial watchdog Joint Committee on Taxation said it expects between 78% and 90% of the estimated $200 billion the IRS will collect as a result of the strengthened workforce will come from small businesses.
President Biden and the Democratic Party have insisted that Americans earning less than $400,000 a year shouldn’t pay a penny more in taxes.
But the Joint Committee on Taxation disputes this, saying between 4% and 9% of the funds raised come from companies making over $500,000 a year.