Team Biden's IRS Comes For Your PayPal And Venmo Payments
Updated: Dec 23, 2022
Taking payments for a side hustle via PayPal or Venmo?
According to recent article in the New York Post by Glenn Reynolds a recent tweet says it all.
“Sam Bankman-Fried: I don’t know where $10 billion went. The Pentagon: We don’t know where $2.2 trillion went. The IRS: You just received $601.37 on Venmo don’t forget to report it.”
The IRS, courtesy of the Democrats' and the American Rescue Plan (ARP) Act, has deputized payment processors to snitch on you by lowering the Form 1099-K reporting threshold from more than 200 transactions and $20,000 to just $600, regardless of the number of transactions.
Per the IRS, a third party settlement organization (TPSO) is required to report any information concerning third party network transactions of any participating payee for payments made for "goods and services" only if the gross amount of total reportable payment transactions exceeds $600 for the calendar year.
Sell a little-used Peloton on Facebook Marketplace for $900?
Receive a $200 Venmo from your sister-in-law to give your brother cash after his debit card was compromised?
Receive $100 Venmo from each of your four siblings for their share of your parents Christmas present?
Congratulations, you may be receiving a Form 1099-K from Facebook and Venmo by January 31, 2023 if they mischaracterize your transactions as income from "goods and services".
Update: On December 23, 2022, the Internal Revenue Service delayed by one year enforcement of the ARP Act giving taxpayers a short reprieve until January 1, 2024.
According to Reynolds it gets worse.
"People get payments through these companies for all sorts of things, like gifts from family members, expense reimbursements from employers, even money from friends for medical expenses, etc. Venmo and PayPal may — and sometimes undoubtedly will — mischaracterize these tax-free gifts as something taxable.
Well, no problem, you can just tell the IRS that Venmo is wrong, right?
Oh, no. That would be too easy. According to the IRS: “Those who receive a 1099-K reflecting income they didn’t earn should call the issuer. The IRS cannot correct it.”
Who is covered by the new 1099-K regulation?
Credit card processors
3rd party payment networks
What to do if you receive a 1099-K
Do not ignore it!
Figure out why it was issued, i.e. do you have a hobby or side business?
Review your payment processor history to identify reimbursements
The easiest solution is to prepare a Schedule C to include with your Form 1040, U.S. Income Tax Return that records the income and deducts the amount back out as non-taxable income.
Based on my 25+ years of IRS representation experience I can unequivocally state that the IRS (and Democrats) are hostile to small businesses and the self-employed. I foresee hours arguing with IRS agents over the need to scrutinize minor children's bank accounts and de minimis tax deficiency notices all while the government is incapable of accounting for billions of dollars. In addition, the planned hiring of 87,000 new IRS agents compels taxpayers to exercise due diligence when assembling tax records and reviewing the tax return lest you end up battling Venmo to issue a corrected 1099-K.
Have a tax question? Request a free consultation HERE with Mark W. Sullivan, EA
December 20, 2022 Post, "It's My Accountant's Fault!
Copyright 2022 Mark Sullivan Consulting, PLLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®
Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.
Reynolds, Glenn H., "Team Biden is using the IRS to attack the gig economy", New York Post (12/6/22)
Glenn Harlan Reynolds is a professor of law at the University of Tennessee and founder of the InstaPundit.com blog