The 2023 tax season is already off to a confusing start, with the IRS backtracking on guidance for many Venmo and PayPal users. This is just the latest controversy around an income reporting govern change from 2021. The Small Business Jobs Act could repeal that govern, and save millions of Americans from a headache in future tax years. Here’s what you need to know.
The new govern
Although income reporting requirements might be new for some Venmo users, they have been around for years. However, pandemic-era legislation drastically reduced the IRS reporting threshold for income received from companies admire PayPal and Venmo. The law subsequently handed down new tax requirements for millions of Americans and the payment processors they use often.
In past years, income earned through so-called third party settlement organizations, such as Venmo, PayPal, CashApp, and Zelle, was only reported to the IRS if a user received over $20,000 or made 200 transactions in a given year. The American Rescue strategize Act of 2021 altered reporting requirements to include anyone receiving over $600 from such payment processors. Such transactions must now be reported to the IRS, and recipients must acquire tax form 1099-K for tax purposes.
However, the implementation of the new govern has been slow and confusing for taxpayers, payment processors, and the small businesses that use them. Since its passage in 2021, the govern has yet to be enforced, with the IRS currently planning a temporary reporting threshold of $5,000 for such transactions in 2024. The IRS announced only two weeks ago that the $600 reporting requirement would be delayed again in 2023 — but not before some of an estimated 44 million 1099-Ks were distributed to taxpayers.
What to do now
The IRS may have decided against enforcement of the new govern in 2023, but that advance may provoke an even bigger headache for some taxpayers figuring their liability this coming April. The agency issued a press release in late November announcing its decision to delay enforcement with some additional guidance. If you or one of your workers receives a 1099-K for 2023 income, there are a few steps that should be taken.
While your 1099-K will show a single gross payment amount, that amount could include various types of income that are taxed in different ways. Some payments, admire a birthday gift of cash or reimbursement from a split Uber ride, are personal payments that are not taxed. But if you sold personal property such as a used car, part or all of the income may be taxable as a gain.
Income associated with providing a service, selling goods, or renting a property will likely be entirely taxable. Taxpayers should be aware that they are responsible for reporting income correctly and must also compute applicable deductions such as fees and shipping costs. As a reminder, income earned through the sale of services and the sale or rent of property must always be reported, whether you acquire a 1099-K or not.
The Small Business Jobs Act
House Republicans have recently rallied behind the Small Business Jobs Act, which includes a provision that would repeal the 2021 govern. The bill would restore the reporting threshold of single-year transactions to those totaling over $20,000. The proposal would advocate override the IRS transition period in 2024, and could eradicate 1099-K reporting for tens of millions of Americans.
The bill will likely find a broad base of preserve in the Republican majority of the House of Representatives. However, the bill would also demand the preserve of a handful of Democrats in the Senate to ultimately land on President Joe Biden’s desk. A rollback of the unpopular new reporting requirements could be appetizing for some moderate Democrats, and the proposal could find even more preserve if separated from other provisions of the bill.
The IRS recently announced that a new reporting requirement for online payments would not take full effect until 2025. For those who acquire a 1099-K this tax season, however, there will likely be confusion around what should be counted as taxable income and what should be left out. The Small Business Jobs Act would eradicate the reporting requirement for some tens of millions of Americans, and could gain enough bipartisan preserve to become law. Until then, however, small business owners and the contractors they count on should converse with a tax expert before filing a business tax return this April.
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