The Internal Revenue Service reminds taxpayers to report transactions of at least $600 made through payment networks like Venmo, Paypal, and Cash App as the agency seeks to obtain data regarding part-time employment and side gigs, a move that critics have termed government overreach.
In a recent explainer posted online, the IRS said that according to the American Rescue Plan Act of 2021, any payment made after March 11, 2021, that exceeds $600 must be reported. The target of the new reporting rule is small business owners, and people working side hustles or part-time gigs for extra income. Earlier the reporting threshold was $20,000 and more than 200 transactions within a calendar year. But, the amended rule applies to a single transaction.
“You should receive Form 1099-K by January 31 if, in the prior calendar year, you received payments from all payment card transactions (e.g., debit, credit, or stored-value cards), and in settlement of third-party payment network transactions above the minimum reporting thresholds,” said the agency.
The reporting guidelines do not apply to noncommercial payments such rent, vacation, food, or one-time transactions like selling something online. The Form 1099-K will be sent by the payment platforms through which the transaction was done.
If a form is received by mistake, “contact the Payment Settlement Entity (PSE) listed on the Form 1099-K” or provide an explanation in the tax return, according to the agency.
Failure to report transactions on Form 1099-K could trigger an audit by the IRS since the agency receives a copy of the form.
The American Rescue Plan Act of 2021 or COVID-19 Stimulus Package is a $1.9 trillion economic plan passed by congress and signed into law by President Joe Biden on March 11, 2021. The final amended bill was passed by the House with all, except one, Democrats voting for it, and all Republicans against it.
The recent threshold change, from the earlier $20,000 and 200 transactions, to $600 for a single transaction, was part of the bill, and it is expected to identify Americans who are not reporting the full extent of their gross income to the government.
Critics have called the bill out as part of government overreach into the personal finances of Americans, and have noted that such extreme tax measures will harm small business owners and average citizens trying to make ends meet. This contradicts the president’s statement that greater tax enforcement wouldn’t affect lower- and middle-income Americans.
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