Users of Venmo, Cash App and other digital wallets get tax relief

Users of Venmo, Cash App and other digital wallets get tax relief

For the second time in a year, the Internal Revenue Service is delaying implementation of a controversial tax policy that would have required users of digital wallets and e-commerce platforms to start reporting small transactions to the tax collection agency.

The IRS said Tuesday it will gradually phase out the new policy, which requires individuals and small businesses to report digital transactions of at least $600 to the federal government.

The new reporting requirement was scheduled to take effect late last year, but the Biden administration abruptly postponed it after pressure from lobbyists and opposition from users of services like Venmo, PayPal, Cash App, StubHub and Etsy.

The head of the Internal Revenue Service said the decision to delay the rule stemmed from concerns about higher tax bills among those using digital wallets.

“We spent several months gathering feedback from third-party groups and others, and it became clear that we needed additional time to effectively implement the new reporting requirements,” IRS Commissioner Daniel Werfel said in a statement. Is.”

The rule, which was included in the 2021 American Rescue Plan, was intended to help close the $7 trillion “tax gap” that the United States owes but has not collected. Before the new law, services like Venmo were only required to provide users a snapshot of their income, called a 1099-K form, if they received more than $20,000 and had more than 200 transactions a year . The form was to be submitted to the IRS with the tax return and was intended to help determine how much a taxpayer owed.

The 2021 law reduced that threshold to $600 for an entire year, regardless of the number of transactions, significantly increasing the number of people who need to report more income and pay more taxes. There was a possibility of it happening.

In its announcement Tuesday, the IRS said it would keep the old policy in place for the current tax year. And in 2024, it plans to require only taxpayers with business transactions of more than $5,000 to report that income.

IRS officials said the commissioner had discretion to administer the tax law and the authority to delay its application.

The change in the law was projected to raise approximately $8 billion in additional tax revenue over 10 years. IRS officials had no estimate of how much tax revenue would not be collected due to the delay.

Democrats and Republicans in Congress have been working on new legislation since last year that would ease reporting requirements to place less of a burden on small businesses.

“This red tape hurts small businesses and other Ohioans selling products online, sucking up time and resources from the smallest online sellers,” Senator Sherrod Brown, Democrat of Ohio, said in May. “By raising the limit, we can prevent the IRS from interfering with small transactions and cut down on excessive paperwork.”

Many taxpayers who run small businesses, or occasionally sell goods on the side, fear that they could face a messy fight with the IRS if their tax forms mistakenly show them as having more income than they actually did. Is. In some cases, people who sell used items may face a higher tax bill for those sales if they do not have receipts showing how those items have decreased in value.

Lobbying groups are urging the Biden administration to delay the policy again to give Congress time to act before more than 40 million tax forms are sent to taxpayers. He has argued that there remains widespread confusion about whether taxpayers have to pay tax on small digital transactions between family members and friends.

Arshi Siddiqui said, “The IRS’s decision represents a major victory for millions of consumers who may have been hit by the 1099-Ks freight train in January, and it calls on Congress to craft a permanent legislative solution on a bipartisan basis.” You will get more time also.” A partner at Akin Gump, who is leading an effort by a coalition of businesses trying to change the new tax requirements.

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