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IRS Plans Biggest CrackDown on Digital Payments: Will You Get Affected?

Payment app providers will have to start reporting to the IRS a user’s business transactions if, in aggregate, they total $600 or more for the year. A business transaction is defined as payment for a good or service.

Before, app providers only had to send the IRS a Form 1099-K if an individual account had at least 200 business transactions in a year and if those transactions combined resulted in gross payments of at least $20,000.

Read more: Are IRS Unemployment Tax Refund Checks Arriving In October?

However, the rule change also does not make other transactions suddenly taxable. The biggest change is the increased visibility the IRS will have into business income transactions, both those that have always been reported by the income recipient and those that haven’t been.

Scott Talbott, spokesman for the Electronic Transaction Association, said “Those who are tax evaders, who violated the self-reporting rules and utilized the old thresholds to avoid paying taxes,” should be the most worried about this provision. 

Read more: Trump Seeks Attorneys Assistance To Stop IRS from Handling his Tax Returns

On the other hand, Mark Luscombe, principal analyst for tax publisher Wolters Kluwer Tax & Accounting said many tax filers who use payment apps, whether or not they’re engaged in business transactions should be worried too. 

“These third-party settlement entities may not know for sure if they are dealing with a business or an individual or if they are dealing with a payment for goods or services, or a non-taxable transaction,” he said. 

Read more: Deputy Treasury: IRS Plans to Collect $400 Billion In Unpaid Taxes

“It is going to be up to the taxpayer, if they receive a 1099 in any form for a nontaxable event, such as splitting rent among roommates, splitting a dinner bill, or even selling something on eBay for less than you paid for it, to explain to the IRS that the 1099 was received for a non-taxable transaction,” he added. 

Now, the best thing people can do is to only use an app for taxable business transactions and keep their other, non-taxable transactions separate.

Keep up with the latest news here with us at the East County Gazette. 

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