No one earning under $400,000 will experience a rise in taxes, the Biden Administration repeatedly promised. Unfortunately, albeit unsurprisingly, this is not true as the IRS is now hunting for new taxes for nearly every transaction that takes place. Payment apps such as Venmo, Zelle, Cash App, and PayPal were easy ways to transfer money in an instant, and people do not typically use these apps for large sums. Yet, this month the IRS will begin collecting taxes on commercial transactions amounting to $600 or more per year.
PayPal users may have received the following notice asking for detailed personal information to provide the IRS:
“You may notice that in the coming months we will ask you for your tax information, like a social security number or tax ID, if you haven’t provided it to us already, in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure there aren’t any issues when these changes take effect in 2022. This helps us meet our obligations to the IRS.”
Before the American Rescue Plan Act changed the tax code, mobile payment apps were only required to report anyone with over 200 commercial transactions that exceeded $20,000 in value. The IRS claims that it will only amass taxes on “commercial transactions,” but that is a fine line. If someone pays their child a monthly allowance for services, does that count as a commercial transaction? If someone pays their neighbor for parts, for, say, fixing their car, would that count as a commercial transaction? Would buying an item on a site such as Craigslist be considered a commercial transaction? If someone lies and says a transaction was personal, will they be convicted of tax evasion? The IRS will need to dive deep into our private lives to determine exactly where our money is going.
Another discounted issue here is that many of these payment platforms incentivize users to connect their personal bank accounts to avoid a credit card fee (typically 3%). Let me be clear – if you do not abide by the new rules, these payment platforms will lock you out and, at best, freeze your funds. The original intention of payment apps being a simple person-to-person transaction has been destroyed due to the American Rescue Plan Act. In this regard, cash is still king, but the IRS will likely plan an assassination.