This is a tax day in the United States, the deadline for most people to submit documents and pay the tax due. But while this year’s tax season could end for millions of Americans receiving payment through digital payment services such as PayPal, Venmo, Zelle and the Cash App, next tax year could come with even more complications.
Under a new law buried in the U.S. Rescue Plan Act of 2021, digital payment services or third-party settlement organizations (TPSOs) will now have to notify federal taxes for payments totaling more than $ 600 during the year.
Prior to the change, taxpayers received a notification – known as 1099-K – only if they processed more than 200 business transactions worth more than $ 20,000 in one year.
Now, with the payment threshold reduced to $ 600, American taxpayers who have never seen the 1099-K will receive one. No one knows how many Americans will receive these forms, but tax lobbyists estimate the number at 20 million.
According to small business consultant Jean Marx, who wrote in the Guardian earlier this year, “the reality is that there are 30 million small businesses, freelancers, sole proprietors and independent contractors in the United States … who receive a number of small payments from many customers everywhere. the year may forget. “
For those whose record-keeping is not up to standard, Marx says: “Don’t worry! The IRS will now be able to figure out what you’ve earned anyway. “
Venmo says it will send 1099-K forms to business account holders after January next year to anyone who receives payments to sell goods or services through the service.
The threshold varies depending on the owner’s country of residence. For most states, the threshold is $ 20,000 in gross payments from sales of goods or services for one year and 200 payments for goods and services in the same year.
For residents of Massachusetts, Maryland, Vermont and Virginia, the threshold is $ 600, regardless of the number of transactions. For Illinois residents, the threshold is $ 1,000 with three or more transactions.
In addition, individual taxpayers who have sold cryptocurrency to Venmo will receive a profit and loss statement.
If this is a concern for record keeping, the IRS would like you to know that the data collected will only be used for “taxpayer and field training products and services” as well as “new approaches to review and collection”.
“For tax year 2022, you need to consider the amounts shown in your 1099-K when calculating gross revenue for your tax return,” warns PayPal. “The IRS will be able to cross-reference both our report and yours.”
The changes are coming as the IRS faces its biggest lag in history. At the end of the 2021 filing season, the agency had 35.3 million declarations pending processing, but with no more staff since 1970, a reduced budget of 15% in real terms and a significantly more complex tax code.
In the last two years, the agency has suffered the biggest data breach in its history, as the personal financial information of famous taxpayers leaked on the news website ProPublica.