A brand-new law requires mobile payment processors like Venmo, Cash App, Apple Pay, Paypal, eBay, and many more to send the IRS and you a 1099 if you get sent $600 and over for “goods and services” via that mobile processor. These mobile processors are called TPSO’s. Venmo, Cash App, Apple Pay, Paypal, eBay and more are all TPSO's.
This brand new law is part of the “American Rescue Plan”.
Here is a brief history of 1099 reporting that I've watched happen:
*** In the 1980's the IRS stepped up 1099 reporting so that businesses had to report on total yearly payments to service vendors. The goal was to reduce welfare payments by tracking down Dads who weren't paying child support.
*** In 2001, the Patriot Act greatly expanded 1099 reporting requirements. It also allowed the IRS to collect data on all credit card transactions, so they are no longer included in 1099 reporting.
***Now, in 2002, the government is requring TPSO's to report on all money you've recieved in a year that's over $600 from one source and may be income. This new law marks a sharp departure from previous collection efforts, in a misguided way. If you care about civil rights, read on.
Personal Money Reported as Busines Income
TPSO's are used more frequently for personal expenses. A young man told me that he received a 1099 for money he and his wife pass back and forth to each other using Cash.app. To clarify, he'll be getting a 1099 for grocery money. The government doesn't know if it's income or not, so they'll collect everything. The problem with this is that it's a legal matter if you don't declare your income, and the burden of proof is on you.
Double Declaring Busines Income
The other problem with this new law is that if a client does pay you with Venmo, that client is already rquired to send a 1099 to you. That means you'll get 2 1099's for the same income. Like I said before, all credit card transactions are already exempt from 1099 reporting but Venmo, Cash app, etc take money out of your checking account. It is litterally impossible to prove you only got paid once.
Why this should be made illegal now
Consider how the governments mistakes with issuing 1099's could ruin your life.
This is how the IRS audits. If you fail to declare income, the IRS has forever to come after you. And the penalty for not declariing income can be prison. If in 10 (or 15) years, the government audits you for Cash.app money you received and you don't have the records to prove that it was your ex-wife sending you money for groceries, the IRS can put you into prison. If your client sent you a 1099 for income via Venmo, so that income was double declared is that client going to stand up for you with the IRS by opening their books to the IRS?
If the IRS thinks you've declared expenses that aren't legitimate, they have 3 years to audit you. The burden of proof is on you to prove that the expense is an acceptable write-off. That's why businesses keep records for 4 years--in case of an audit. If you can't prove it, you have to pay that expense, plus penatlies and interest.
Putting you in prison for not declaring your income could become a huge civil rights issue in the future. If you believe the government won't ever exercise that power, then they don't need the right to exercise that power.
How our goverment could meet their objective in a positive way
This law was passed because the government needs money. Ask anyone who works for the IRS (or writes a book about working at the IRS) and you will learn that the best way to get more tax revenue is to give the IRS the budget and management to hire hire-level sophistocated auditors who specifically target high income tax evaders--the whales. These are hard cases to solve but once solved are very profitable for the government. The cost of giving the IRS the money for this kind of auditing is far cheaper too. Funding the IRS to go after the whales who are cheating on their taxes will bring in lots of money.
On the other hand, this law is going to fail to bring in more money because massive data collection is very expensive. Massive data collection of mostly unsable data is a net loss. So will we taxpayers be covering their losses the IRS 's losses with yet more taxes?
What can you do?
First of all, please contact your federal congressional representatives and senators to complain about this new bill. Another law planned was to require "every" bank transaction over $600 reported to the IRS. It did not pass because so many people complained. Complaining works, especially if you complain in a proactive way.
Ask for a repeal of the law that changed tax reporting requirements for TPSO's as part of the American Rescue Plan.
Second, if you're using TPSO's to pay someone choose, “gifts, donations, or reimbursements”. Do not select “services or products” unless you are sending the money for professional services or retail products. Someone told me that Cash.app does not offer that choice. What else can you do to protect yourself?