WASHINGTON (AP) – In a recent report by the Government Accountability Office (GAO), the Internal Revenue Service (IRS) has revealed that it will be issuing 1099-K tax forms to approximately 30 million Americans for earnings made through popular payment platforms like Venmo and PayPal. This marks the first time the IRS will scrutinize transactions through these platforms in such a widespread manner.
Representative Jason Smith, Missouri’s House Ways and Means Chairman, expressed concerns about the new reporting threshold included in the Democrats’ American Rescue Plan Act. The policy lowers the annual threshold for Americans to report transactions from third-party payment platforms from $20,000 to $600. Smith argues that this change will affect everyday individuals, such as hairdressers and the neighbor’s kid, rather than targeting the wealthy.
The GAO report highlights that the IRS expects to receive around 44 million 1099-K forms in 2024, which is an increase of 30 million compared to previous years. However, the report also states that the IRS currently lacks a plan to effectively analyze this additional data for enforcement and outreach purposes. This limitation hinders the agency’s understanding of the burden placed on taxpayers and prevents them from prioritizing their efforts effectively.
Critics argue that the lower reporting threshold will have a significant impact on small businesses, gig workers, and casual Venmo and PayPal users. The Tax Policy Center warns that without proper communication and outreach from the IRS, more law-abiding taxpayers may attempt to circumvent the reporting rule altogether, creating potential complications for tax compliance.
Additionally, a study conducted by Visa found that a majority of small businesses and consumers plan to shift towards exclusively using digital payments. With this trend on the rise, the new reporting requirements will have far-reaching implications for both vendors and customers.
The GAO report has raised concerns that the increased number of tax forms being sent out by the IRS will likely lead to more middle-class taxpayers being subjected to audits. However, according to the report, the IRS has not outlined a clear plan on how to effectively utilize the information gathered from these forms.
As the January 2024 deadline approaches, many Americans are left feeling uncertain about how to navigate the new reporting requirements and fill out the 1099-K forms correctly. The lack of clarity from the IRS poses potential challenges for everyday taxpayers and may result in increased confusion and mistakes when reporting their earnings.