How New I.R.S. Rules could affect Venmo, Etsy and CashApp users

Some users of digital wallets and e-commerce platforms are to start reporting small transactions, sowing fear among small business owners.

WASHINGTON - This year, Dennis Turbeville, a carpenter in Washington, used the mobile payment service Venmo to sell his goods, collect payments on a rental property and share his personal expenses with family and friends.

He carefully tracks income from his business, Austen Morris Custom Furniture, with QuickBooks software and works with an accountant to ensure that everything he owes the federal government is being paid properly.

But Turbeville worries that a recent tax change aimed at tackling small business tax evasion and of those who operating in the "gig" economy only translates to more paperwork and headaches on the part of Internal Revenue. He hopes that if there are any unintended discrepancies, his business will be too small to attract an audit.

A tax code change enacted last year aimed ensure that those who use services such as Venmo, CashApp, Etsy, StubHub, and Airbnb to raise money report all income to the I.R.S. The change was part of the Biden administration's effort to narrow the $7 trillion "tax gap" between income owed and income received.

But for millions of Americans, the new requirement means additional tax forms, potentially higher tax bills, and a whole lot of confusion. This is causing anxiety among some of the middle class taxpayers and independent business owners that President Biden has promised to avoid increased tax scrutiny. see how very stressful it would be for someone who doesn't have an accountant,” Turbeville said. "I really feel in the dark about this."

The new tax policy was rolled into the stimulus package known as the US Bailout, which Democrats passed in 2021. It has gone largely unnoticed because it applies to income earned that year and affects the taxes most Americans will pay in 2023. It is expected to generate about $8 billion in additional tax revenue over a decade .

But as the impact of the rule and the prospect of surprise tax bills become clear, it is attracting business groups, lawmakers and others. , prompting a scramble within the Biden administration to find a solution to avert another chaotic tax season next year.

Senators Joe Manchin III, Democrat of West Virginia, and Bill Hagerty, Republican of Tennessee, should attempt to reduce the tax measure by attaching amendments to the $1.7 trillion spending package Congress is expected to pass this week. Business groups have urged the Treasury Department to act on its own to delay the new requirements to avoid an administrative crisis at the I.R.S., which has been implicated by an internal customer service watchdog dismal.

Before the rule change, services like Venmo provided users with a snapshot of their income called a 1099-K form only if they received more than $20,000 and had over 200 transactions. The forms were supposed to be submitted with tax returns to the I.R.S. and were intended to help determine the amount owed by a taxpayer.

These thresholds were lowered to $600 for the entire year, regardless of the number of transactions, greatly expanding the number of people who receive such payments and who are likely to be required to pay more taxes.

Many taxpayers who run small businesses or occasionally sell goods on the side, often mix their business and personal dealings. They could face messy fights with the I.R.S. if their tax forms incorrectly show that they earn more income than they actually earned. In some cases, people selling used items may face high taxes for those sales if they cannot find old receipts showing how the value of those items has depreciated from the time they were purchased. been bought.

Kidizen, a site for buying and reselling children's clothing and toys, is seeing some of its sellers give up for fear of being confronted with inflated - and incorrect - tax bills that they cannot afford to dispute.

"We are concerned that this burden will cause so much confusion that it is...