Independent contractors who have earned money through online services will have their income reported to the Internal Revenue Service (IRS) starting in 2023, the agency said in a second warning issued Tuesday.
People who have made money through eBay, Etsy, Poshmark, Uber and other digital services will face the new oversight and new rules. It applies to anyone who has earned more than $600 through these platforms or through Venmo, Cash App, Zelle, PayPal, or similar platforms in exchange for goods and services.
“This is the second in a series of reminders to help taxpayers prepare for the upcoming tax filing season. A ‘Get Prepared’ page outlines steps taxpayers can take now to make it easier to file taxes in 2023,” the IRS said in a news release Tuesday.
He noted that prior to 2022, tax Form 1099-K was “only issued for third-party network transactions if the total number of transactions exceeded 200 for the year and the total amount of those transactions exceeded $20,000. “. But the “2021 U.S. Bailout Act, backed by the Biden administration, lowered the reporting threshold for third-party networks that process payments for those doing business,” according to the agency.
“Now, a single transaction over $600 can cause the third-party platform to issue a 1099-K. Money received through third-party payment networks from friends and relatives as personal gifts or reimbursements for personal expenses n is not taxable,” he said.
Business owners were already required to report such income to the IRS. The new US bailout rule, passed last year, means the agency will be able to determine what businesses have earned through cash apps or other digital services, regardless of what is reported through 1099-K forms.
And the new rule only affects payments received for goods and services. For example, those who use Venmo or PayPal to send a gift to a family member, pay a roommate’s rent, or reimburse a friend will be excluded from the new IRS rules.
“It doesn’t include things like paying back family or friends using PayPal or Venmo for dinner, gifts, shared trips,” PayPal said.
Digital services like PayPal and others will be mandated to send users 1099-K forms if they’ve reached the $600 IRS threshold for reporting income.
“For the 2022 tax year, you must consider the amounts reported on your Form 1099-K when calculating gross receipts for your tax return,” PayPal also said on its website, adding that “the IRS may cross reference both our report and yours.
According to a Pew survey, about one in four Americans have made money selling something on the internet or using a digital service for work. This means the new reporting rule could impact tens of millions of taxpayers.
Companies such as Airbnb, eBay, Etsy, PayPal and Poshmark have formed a group called “Coalition for 1099-K Fairness” and are asking Congress to rescind or change the $600 reporting rule.
“Without timely action by Congress, millions of Americans and fledgling micro-businesses will begin receiving 1099-Ks in January 2023, often in cases where there is no tax liability, creating significant confusion and administrative challenges”, warns the group on its website.
Some members of Congress have also expressed skepticism about the rule. In late November, about 20 lawmakers wrote a letter to Acting IRS Commissioner Douglas O’Donnell about 1099-K reporting requirements.
“We have heard from many voters, accountants and other tax professionals who have expressed confusion about this new requirement and misunderstanding about which transactions will be subject to taxation and reporting. This increase in filing will further complicate the already difficult tax compliance burden faced by small businesses and individual filers,” they wrote.
The IRS did not respond to the letter. The Epoch Times has contacted the agency for comment.
Last year, Treasury Secretary Janet Yellen said such reporting rules were needed.
“We have a tax gap that over the next decade is estimated to be $7 trillion,” Yellen said. Told CBS in 2021, “namely, a shortfall in the amount the IRS collects due to individuals’ failure to report the income they have earned.”
She was responding to widespread criticism of a separate proposal that would allow the IRS to track all banking transactions of $600 or more. This proposal was ultimately rejected.
“There is a lot of tax evasion and cheating,” Yellen also said at the time.
#IRS #issues #tax #warning #Americans #earned #online