Breakdown: What the IRS’s 1099-K Surveillance Scheme Means for Working Families
As audits on middle-class families are slated to rise next year, taxpayers will soon face a tsunami of complex paperwork requirements that will open them up to further scrutiny from the IRS, according to new guidance released last week by the tax agency.
House Committee on Ways and Means Chairman Jason Smith (MO-08) issued the following statement:
“Under the IRS’s surveillance scheme imposed by the Democrats’ so-called American Rescue Plan, all Americans who use apps like Venmo or PayPal to sell a used couch, guitar, or concert tickets will now receive tax forms they may not expect from those companies if they receive more than $600 over the course of a year. This goes after hairdressers and your neighbor’s kid, not billionaires, and will create a digital trail for IRS agents to monitor more Americans regardless of whether these individuals actually owe any taxes on the payments they received. Only when faced with a firestorm of criticism did the Biden Administration announce that it would delay implementation of its latest IRS scheme by a year. But that has just added even more confusion and worry among gig workers and families.”
Prior to Democrats’ American Rescue Plan, platforms like Venmo, Paypal, and others would only report to the IRS if, over the course of the year, the user had more than 200 commercial transactions and made more than $20,000 in payments. Now, payments totaling more than $600 will trigger a 1099-K that will be reported to the IRS regardless of the number of transactions.
Last week’s guidance from the IRS will add even more confusion for working families who are scrambling to understand what Democrats’ 1099-K surveillance scheme means for them:
Save your receipts (or else)
The IRS wants you to keep your receipts, no matter how old the item is, in case you sell it – even at a loss. This change puts taxpayers at risk for over-reporting their income and could force them to hire a tax professional to avoid unwanted paperwork and audits.
Personal or Commercial – how will the IRS decide?
While Democrats claim this requirement is only for commercial transactions, it’s unclear how the IRS will distinguish splitting a check with friends from selling something on Facebook Marketplace or Craigslist.
Some third-party platforms ask buyers to check a box to distinguish personal transactions from commercial — but even this process can be confusing and prone to errors that will force many to have to spend hours fixing wrongly classified transactions with the services they’ve used.
Even Secretary Yellen admitted that she’s heard from taxpayers and businesses concerned about the reporting requirements.
This goes after hairdressers and your neighbor’s kid, not billionaires
According to the Joint Committee on Taxation (JCT), over 90 percent of the tax burden will fall on middle-class families and gig workers caught in the crosshairs of Democrats’ tax scheme.Recent reporting by the New York Times outlines the challenges and confusion many gig workers face with the new reporting requirements:
“‘I’m walking through a minefield, figuring out what I’m supposed to do,” said one worker.
“Many content creators see fluctuations in income each month, and their taxes can quickly become complicated.”
The price of admission: your Social Security number
Taxpayers with $600 or more in transactions using third-party payment platforms will need to fork over sensitive personal information to private companies. Under the IRS’s new surveillance scheme, businesses are required to obtain your social security number to fulfill reporting requirements.
As the Hill writes:
“People are being told they need to provide their Social Security numbers to online platforms and cash transfer app companies for the sales of things like clothes and concert tickets over $600…
“The prompts from companies like eBay and Ticketmaster are the result of a change in the tax law that was reneged last-minute by the IRS ahead of the 2023 tax filing season.
“The switch is causing a lot of confusion among taxpayers and tax professionals — and even within the IRS itself.”