The IRS has taken an interest in transactions that involve part-time work, side hustles, and the selling of goods. They now require individuals to report $600 or more transactions facilitated through third-party services such as Venmo and PayPal.
No More Privacy
The IRS put out a warning to American business owners that earn $600 annually through services like PayPal, Venmo, and Zelle. The warning specified that owners must fill out a tax form called Form 1099-K.
The new rules will not apply to noncommercial transactions such as reimbursing someone for a meal or selling furniture. Congress passed the American Rescue Plan Act of 2021, which had a provision that lowered the reporting threshold from 200 transactions totaling at least $20,000 to a single transaction over $600.
The goal of the new rule is to crack down on Americans that are trying to evade taxes by not reporting all of their gross income. One of the other reasons this bill was passed was to help pay for the $3.5 trillion social spending bill that aims to invest in childcare, education, and climate change programs.
All filers must include any amount of money that is reported on Form 1099-K as part of their business income. If a filer fails to report the full sum, it may result in an audit, since the IRS will receive all 1099-K forms from the third-party facilitators.
Not So Fast
The new rule has been met with significant pushback from selling platforms such as eBay and Etsy. The two joined with small retailers and drew up the “Coalition for 1099-K Fairness,” which aims to protect “casual online sellers and micro businesses from unfair tax and privacy burdens.”
Because of the Inflation Reduction Act, which will allow for the hiring of 87,000 additional IRS agents, the Joint Committee on Taxation believes that between 78% and 90% of the estimated $200 billion that the IRS will collect will come from small businesses.
The Biden Administration has remained adamant that small businesses will not be overwhelmingly affected, claiming that any individual earning less than $400,000 will not have to pay any extra taxes.
However, the Joint Committee on Taxation claims that only between 4% and 9% of the money that is collected will come from individuals making more than $500,000 a year. The committee also allegedly discovered that taxes would be jumping by $16.7 billion for Americans making less than $200,000 in 2023 and would continue to raise another $14.4 billion for taxpayers who make between $200,000 and $500,000.
In the next 10 years, the average tax rate can be expected to go up for most income categories as a result of the Inflation Reduction Act. Experts have predicted that by 2031, all of the new energy credits and subsidies would result in anyone making less than $400,000 paying up to two-thirds of any additional tax revenue collected that year.
This article was produced and syndicated by Wealth of Geeks.
Max Marvelous has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.