The simple and easy online payment apps like Venmo, Zelle, PayPal, Google Pay, and Apple Pay will be in for a complex transformation if the IRS has its way.
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Congress recently appropriated enough money in the American Rescue Plan to let the IRS hire 87,000 new agents. The goal was to help the service collect billions of dollars in taxes owed by individuals and companies who are evading their tax obligations.
One way that some people evade paying taxes on income is through the use of third-party payment apps. Until now, these apps have not been required to report an individual’s transactions to the IRS if they have fewer than 200 transactions or the total dollar amount is less than $20,000. The lack of reporting makes this income effectively like receiving cash.
While the tax law requires all individuals to report and pay taxes on any payments for goods or services, it’s hard to track income that comes in the form of cash or online apps. To eliminate hiding income on these apps, the IRS has now lowered the reporting requirements to one transaction or a total dollar amount of $600. This change, which was to apply to 2022 transactions, was delayed and now applies to transactions that occur beginning January 1, 2023.
Since earned income is taxable regardless of the method of payment, the new reporting requirements may seem relatively insignificant. What could possibly go wrong? While it is intended to crack down on people who have side hustles, not those sending money to kids or a friend, some fear that the IRS isn’t going to know the difference.
According to a December 7, 2022, article in the Daily Mail by Ronny Reyes, taxpayers whose transactions total more than $600 will receive a 1099-K form from each of the third-party payment companies through which they received payments.
Read the full article here by Rick Kahler, Advisor Perspectives.
