An IRS rule governing payment apps that comes into effect for the 2022 tax year has some small businesspeople concerned about getting ensnared in red tape or being subjected to an audit, the New York Times reported.
This new rule, a provision of the 2021 stimulus package known as the American Rescue Plan, is aimed at closing the tax gap, the difference between taxes owed and taxes paid on time. It requires those business using payment cards and third-party payment service apps such as Venmo, CashApp, Etsy, StubHub and Airbnb to report all of their income. The reporting requirement for these transactions is now in excess of $600. Previously, it was in excess of $20,000.
The rule has prompted objections from business groups, lawmakers and others who fear the prospect of surprise tax bills, the Times reported. In response, the Biden administration is trying to provide a fix.
In the meantime, U.S. Sens. Bill Hagerty (R-Tenn.), and Joe Manchin III (D- W.Va.) filed an amendment to the $1.7 trillion spending package working its way through Congress to increase the threshold to $10,000. Sen. Maggie Hansen (D-N.H.) sponsored legislation that would raise the threshold to $5,000. Sen. Shelley Moore Capito (R-W.Va,) introduced an amendment that would delay implementation of the rule for one year.
Sen. Rick Scott (R-Fla.) called the “tracking [of] every financial transaction Americans make in excess of $600 … an outrageous violation of Americans’ privacy. It’s stuff we see in Communist China.”
Arshi Siddiqui, a partner at the law firm Akin Gump, represents a coalition of businesses trying to change the new tax requirements. She told the Times that as many as 50 million taxpayers would get new tax statements for the first time, warning that “[i]f Congress doesn’t act, we’ll see a tsunami of 1099s going out to people who will be confused.”
The Times noted that the IRS is already laboring under the “strain” of clearing its backlogs of unprocessed tax returns. Earlier this month, the IRS urged taxpayers receiving a Form 1099 for the first time to wait to file until they have gathered and organized all of their tax records.
Prominent anti-tax advocate Grover Nordquist told the Times that the burden would fall disproportionately on low-come people as “[b]illionaires don’t have side gigs where they make money renting their room out.”
Another problem could be that people using services such as Venmo may not separate out their personal and business expenses. The company has been telling its customers that payments not specifically designated as being for goods and services will not be included on the 1099-K forms that it issues.