IRS Issues Another Tax Warning to Americans Who Made More Than $600 Online

[Ubiquitous]

Independent contractors who made money via 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 made money via eBay, Etsy, Poshmark, Uber, and other digital
services will face the new scrutiny and rules. It applies to anyone who made
more than $600 via those platforms or via Venmo, Cash App, Zelle, PayPal, or
similar platforms in return for goods and services.

“This is the second in a series of reminders to help taxpayers get ready for
the upcoming tax filing season. A ‘Get Ready’ page outlines steps taxpayers
can take now to make tax filing easier in 2023,” the IRS said in a news
release Tuesday.

It noted that before 2022, tax form 1099-K was “issued for third-party
networks transactions only if the total number of transactions exceeded 200
for the year and the aggregate amount of these transactions exceeded
$20,000.” But the Biden administration-backed “American Rescue Plan Act of
2021 lowered the reporting threshold for third party networks that process
payments for those doing business,” according to the agency.

“Now a single transaction exceeding $600 can require 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 is not taxable,” it said.

Business owners were already required to report such income to the IRS. The
new rule under the American Rescue Plan, passed last year, means that the
agency will be able to figure out what businesses earned via cash apps or
other digital services—regardless of what is reported via 1099-K forms.

And the new rule only impacts payments received for goods and services. For
example, those who use Venmo or PayPal to send a family member a gift, to pay
a roommate’s rent, or to pay back a friend will be excluded from the new IRS
rules.

“This doesn’t include things like paying your family or friends back using
PayPal or Venmo for dinner, gifts, shared trips,” PayPal said.

Digital services like PayPal and the others will be mandated to send users
1099-K forms if they met the $600 IRS threshold to report income.

“For the 2022 tax year, you should consider the amounts shown on your Form
1099-K when calculating gross receipts for your income tax return,” PayPal
also said on its website, adding that “the IRS will be able to cross-
reference both our report and yours.”

Paypal logoSignage outside PayPal headquarters in San Jose, Calif., in a file
photo. (Jeff Chiu/AP Photo)
About one in four Americans have made money by selling something over the
internet or using a digital service to take on work, according to a Pew
survey. It means the new reporting rule could impact possibly tens of
millions of taxpayers.

‘Difficult’
Companies such as Airbnb, eBay, Etsy, PayPal, and Poshmark formed a group
called the “Coalition for 1099-K Fairness” and are asking Congress to rescind
or change the $600 reporting rule.

“Without timely Congressional action, millions of Americans and fledgling
micro-businesses will begin receiving 1099-Ks in January 2023, often in
instances where there is no tax liability whatsoever, creating significant
confusion and administrative challenges,” the group warns on its website.

Some members of Congress have also expressed skepticism over the rule. In
late November, about 20 lawmakers wrote a letter to IRS acting Commissioner
Douglas O’Donnell about the 1099-K reporting requirements.

“We have heard from numerous constituents, accountants, and other tax
professionals who have expressed confusion regarding this new requirement and
misunderstanding on what transactions will be subject to taxation and
reporting. This increased reporting will further complicate the already
difficult tax compliance burden that small businesses and individual filers
face,” they wrote.

The IRS has not responded to the letter. The Epoch Times contacted the agency
for comment.

Last year, Treasury Secretary Janet Yellen said that such reporting rules
were needed.

“We have a tax gap that over the next decade is estimated at $7 trillion,”
Yellen told CBS in 2021, “namely, a shortfall in the amount that the IRS is
collecting due to a failure of individuals to report the income that they
have earned.”

She was responding to widespread criticism of a separate proposal that would
allow the IRS to track all bank transactions of $600 or more. That proposal
was ultimately rejected.

“There’s a lot of tax fraud and cheating that’s going on,” Yellen also said
at the time.

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Let's go Brandon!