Payments via PayPal, Venmo and Zelle

[John Keeton]

Everyone should be aware of the new provisions included in the American Rescue Plan Act. Payment credit, debit, and third-party payment networks like PayPal and Venmo are required to report to the IRS on Form 1099-K any annual accumulation of payments received of $600 or more. These provisions were delayed until 2023. Payments to Family and Friends are supposedly not reported by PayPal, however, as noted in the Classified rules for SMC, such payments for goods and services transacted using Friends and Family probably violate the PayPal agreement.

According to Zelle, their service is not impacted by the legislation.

My purpose in posting this is NOT to debate the legality, appropriateness, nor the specifics of the legislation, nor the PayPal rules on how to handle transactions that may occur by use of this Classified forum. It is simply to alert everyone to research this legislation for you own purposes.

[Phil Gaudio]

I came across this article that indicates this won't kick in until 2024?

https://www.taxpayeradvocate.irs.gov/news/nta-blog-heard-loud-and-clear-irs-postpones-implementation-of-600-form-1099-k-reporting-by-a-year/

[John Keeton]

Phil, I think the delay is in the "reporting" timeline. In other words, the 1099-Ks will not be required in 2023 (for transactions in 2022 as per the legislation), but will start in 2024 for transactions occurring in 2023.

[Phil Gaudio]

I stand corrected: so if one were planning on selling a vast collection of Lie Nielsen tools (and retire to Tahiti), they missed the boat (as of Jan 1 2023).

[Keegan Shields]

Correct me if I'm wrong, but it also appears that you are responsible for paying taxes only on the gains - so when you sell anything at a loss (which is common on the secondary market) you wouldn't incur a tax obligation.

You probably need to keep records of what you sell for your accountant. Or use alternate methods.

[Phil Gaudio]

Correct me if I'm wrong, but it also appears that you are responsible for paying taxes only on the gains - so when you sell anything at a loss (which is common on the secondary market) you wouldn't incur a tax obligation.

You probably need to keep records of what you sell for your accountant. Or use alternate methods.

So you buy a plane in 2015 for $200. You sell it in 2023 for $300. You owe income tax on the profit ($100), but if you can't prove the cost basis ($200) you will be paying income tax on the entire sale ($300): sounds like a book keeping nightmare.

[Keegan Shields]

That's a good question for your accountant. Or if you don't want to deal with it, just use an alternate method (cash, gold, personal check, probably others I can't think of).

I'm pretty sure you were always required to report all income to the IRS. These new rules just step up enforcement for all those businesses using Venmo/Zelle/PayPal etc. as their payment processors.

[George Yetka]

I stand corrected: so if one were planning on selling a vast collection of Lie Nielsen tools (and retire to Tahiti), they missed the boat (as of Jan 1 2023).

If you do it quickly and are gone before next tax season you should be fine

I remember reading last year that if you are selling your property and have receipts it will not be taxable. The problem is coming up with the proof it was something you bought and paid taxes on.

[John Keeton]

These new rules just step up enforcement for all those businesses using Venmo/Zelle/PayPal etc. as their payment processors.Keegan, from all I have read it seems that Zelle is a different animal as they never "possess" the funds, i.e., the transfer is direct from bank to bank and does not flow thru Zelle, which was set up by six of the largest banks in the country. https://www.zellepay.com/faq/does-zelle-report-how-much-money-i-receive-irs (https://www.zellepay.com/faq/does-zelle-report-how-much-money-i-receive-irs)

As to the nightmares this is going to cause, the sense I get is that it is massive. The shear volume of reporting is going to be overwhelming to the IRS and the fear is that a LOT will be reported that isn't actually related to whether it was a taxable transaction. The comments on the "cost basis" vs. the sale price would be correct, so record keeping will be absolutely an issue. The problem is that a lot of folks have bought tools years/decades ago and often for cash or otherwise and have no record of the cost. To say that this is going to create HUGE problems is an understatement.

[Michael Weber]

I really don’t like it. I read about this a while back just after I sold an item I had for decades that put me over the 600 limit for the year. Nothing I’ve ever sold on eBay was at or for a profit but just to clear out used accumulated stuff I had moved on from. Former hobby stuff mostly. It put an end to my infrequent selling on eBay. I’m hoping that this is unpopular enough that political pressure will cause the IRS to modify the ruling soon at least for individuals selling personal property.

[Alan Rutherford]

I don't think the IRS will care if you sold a few planes. A few tens of thousands of dollars of "misc" might be a different story.

[Tom M King]

We take puppy deposits with Paypal and Zelle, but we also do a Lot of other business with them. Taxable income is reported, but I can see questions coming up. It's not like the IRS is really capable of doing more than the not enough they're able to do now.

[Brian Elfert]

My understanding is Paypal Friends and Family won't trigger a 1099-K because it isn't supposed to be used for payment for goods and services.

[John Keeton]

I don't think the IRS will care if you sold a few planes. A few tens of thousands of dollars of "misc" might be a diffferent story.Hmmmm.....I think I will let you test that theory, Alan!! Far more trusting of the IRS than am I and I actually was employed by them early in my career.;)

[John Keeton]

My understanding is PayPal Friends and Family won't trigger a 1099-K because it isn't supposed to be used for payment for goods and services.Brian, there are two main problem levels with the new Regs. First is the new and HUGE burden being placed on PayPal and Venmo and their lack of software, employees, structure, etc. to deal with the reporting requirements and do it correctly. Then, the IRS will get millions of 1099Ks on top of the millions they already get and, likewise, will not have the resources with which to deal with them correctly. With all the possibilities for human error, it would be hard to assume that this will all work as conceived.

[Brian Tymchak]

Brian, there are two main problem levels with the new Regs. First is the new and HUGE burden being placed on PayPal and Venmo and their lack of software, employees, structure, etc. to deal with the reporting requirements and do it correctly. Then, the IRS will get millions of 1099Ks on top of the millions they already get and, likewise, will not have the resources with which to deal with them correctly. With all the possibilities for human error, it would be hard to assume that this will all work as conceived.

I don't see this as that much extra effort on the vendor or IRS. In this day and age of technology, I believe that the actual work to report and generate 1099s would be minimal. I speculate a bit here as I had no exposure to tax filing in my career in software development but I find it hard to believe the effort for year 1 would be much more than a couple days of database query design and testing. Year 2+ is a fully automated process. 1099s are provided to customers by email or posted in their account like most stock brokerages do now. The IRS gets an electronic file of 1099 data. E filing is rapidly replacing paper filing, so the IRS labor would decline as well.

[John Keeton]

Another twist here will be the question of whether PayPal will again raise its fees to cover the added burden, and what will Venmo do??

To advance the probability of "over reporting" and leaving taxpayers with the burden of dealing with the issue, the penalties for PayPal, Venmo and other processors impacted are "$280 per failure to file each Form 1099-K and $280 per failure to furnish each payee statement. The maximum information return penalty is $3,426,000 per year, as is the payee statement penalty, for a potential total of $6,852,000. (These amounts are adjusted for inflation each year.)" I am guessing that the policy may be to just send out 1099Ks if the situation seems at the slightest subject to the filing requirements.

[roger wiegand]

Nothing changes with respect to the amount of tax you owe as a result of this change. The added burden on paypal will be pretty minimal, they already have the data.

[mike stenson]

I have a mountain bike frame that I want to get rid of. I'll sell it without profit, at 4x the minimum for them to report. What a pain, I guess it's back to cash and local only.

[andrew whicker]

The system mostly worked itself out w/ cash purchases. We were always supposed to report for taxes, but practically speaking you sold a car for $X and put down $Y on the title transfer. Everyone knew and no one really cared.

Bummer that of all the taxes to collect the ones in charge keep focusing us, the normal people. Isn't there a "gift" option on Venmo? If so, gifts can be up to $100k before they get taxed, right?

[Brian Elfert]

The IRS already receives tens or hundreds of millions of 1099 forms every year. I received a 1099-INT form for one of my accounts and have to include that income on my taxes. Why is processing of 1099-K forms going to be any different? The IRS computers simply compare the total of all W-2, 1099s, and other sources of income reported to the IRS versus what you reported on your tax form. If it matches you are good. If not, they will send out a letter stating you missed some income on your tax form.

[Brian Elfert]

Another twist here will be the question of whether PayPal will again raise its fees to cover the added burden, and what will Venmo do??

To advance the probability of "over reporting" and leaving taxpayers with the burden of dealing with the issue, the penalties for PayPal, Venmo and other processors impacted are "$280 per failure to file each Form 1099-K and $280 per failure to furnish each payee statement. The maximum information return penalty is $3,426,000 per year, as is the payee statement penalty, for a potential total of $6,852,000. (These amounts are adjusted for inflation each year.)" I am guessing that the policy may be to just send out 1099Ks if the situation seems at the slightest subject to the filing requirements.

Paypal has been producing 1099-K forms for a number of years. The threshold was over 200 transactions and over $20,000 in dollar volume. It should be pretty easy to change their systems. They already wrote the code and should just be able to change the number of transactions to one and the dollar amount to $600.

[mike stenson]

Paypal has been producing 1099-K forms for a number of years. The threshold was over 200 transactions and over $20,000 in dollar volume. It should be pretty easy to change their systems. They already wrote the code and should just be able to change the number of transactions to one and the dollar amount to $600.

Yea, their development effort will be minimal. If they decide to raise fees due to it, it's just because they can and it's an excuse.

[Mike Henderson]

I don't see much impact on PayPal or Venmo. But I do see a significant impact on individuals. No one keeps their receipts for things they bought years ago. At a minimum, the limit should be a lot higher than $600. Maybe back to the $20,000 threshold. If you're going to sell as a business, you sure have to sell more than $20,000. If you're selling "yard sale" stuff, it's unlikely you'll reach $20,000.

When this 1099 reporting started $600 was a lot. Today, it's not much but they've never upped that limit.

Mike

[Zachary Hoyt]

90% of my income is through PayPal most years, at a guess, and I passed the 200 transaction/$20,000 threshold several years ago. I assume they send a 1099 to the IRS but I have never seen it myself. It's a bit complicated for me to account for cost of goods sold since a banjo (which is what I sell the most) includes dozens of purchased parts and materials from a few vendors, and I don't buy just one banjo's worth at a time from any given vendor. I estimate conservatively, and pay what seems like a lot of taxes in proportion to my income, but that's life

I have never had any trouble from the IRS about that, though I did the year they lost my paper return and the year before that when they entered one number from my paper return into the computer inaccurately and then told me I had made a math error. I had a copy, so I was able to sort it out, but it took a couple of months. Since those dark days I have gone to e-filing, and everything is pretty easy, and free. It took me about 3 hours this year to file both federal and NY state income and self-employment taxes, and both have already been approved.

[Patty Hann]

Brian, there are two main problem levels with the new Regs. First is the new and HUGE burden being placed on PayPal and Venmo and their lack of software, employees, structure, etc. to deal with the reporting requirements and do it correctly. Then, the IRS will get millions of 1099Ks on top of the millions they already get and, likewise, will not have the resources with which to deal with them correctly. With all the possibilities for human error, it would be hard to assume that this will all work as conceived.

Oh, they have the resources... they just hired 78,000 of them, remember?

And those 78,000 won't be auditing the the guy who sold tens of thousands of "misc" ; they'll be going after the guy who sold the $200 plane.
The IRS does not audit Elon Musk because it would be a nightmare and actually take up more resources ($$) than would be recovered if Elon should owe taxes on some unreported gains.
Also Elon has a lot of savvy lawyers who know all the loopholes. So Elon, rightly or wrongly, will not have to pay; ergo Elon will never be audited in the first place.

But the middle class guys (note plural) will be audited more frequently because those audits are easy to do, and there are a lot more middle class people in the US than there are Elon Musks.
Easy cheap audits (by those newly minted 78000 agents) will yield a lot of revenue...positive ROI for the IRS.
So the little guy is now at greater risk of being audited.

[Mel Fulks]

And we know Elon knows they don’t like him ….he believes in …freedom of the press. Elon will be OK.

[Jim Becker]

Oh, they have the resources... they just hired 78,000 of them, remember?
That's not true. The hiring is over ten years and largely replaced those who have left or will leave and/or brings staffing back to where it's supposed to be to handle the load. They are years behind in just processing regular, everyday work because of lack of resources...and way outdated IT infrastructure.

[Tom M King]

1099's are not a sure thing either. I've had three problems with 1099's, starting in 2017, and they have not fixed any of the problems. They need more help if they're ever going to stay ahead of the small questions that come up. Right now, it just gets shuffled under the pile as the pile grows.

[Bill Dufour]

The odds of one of us being audited is slim with so many unfilled irs positions. They are required, by law, to audit the presidents returns every year and have not done so for at least two years.
Bill D

[Lee DeRaud]

But the middle class guys (note plural) will be audited more frequently because those audits are easy to do, and there are a lot more middle class people in the US than there are Elon Musks.
Easy cheap audits (by those newly minted 78000 agents) will yield a lot of revenue...positive ROI for the IRS.
So the little guy is now at greater risk of being audited.
Seriously?!? The tax on that $600 1099K for a middle-class taxpayer is ~$150. Doing anything beyond an automated "you owe more money" letter is a net loss for the IRS. It's going to take something with several more zeros to get a live human involved.

[Patty Hann]

https://waysandmeans.house.gov/even-treasury-admits-potential-for-new-irs-audits-of-middle-class/

https://waysandmeans.house.gov/wsj-irs-expansion-to-collect-billions-from-middle-class-audits/ (https://waysandmeans.house.gov/even-treasury-admits-potential-for-new-irs-audits-of-middle-class/)

[John Goodin]

I understand the different transaction process with Zelle and since most of my fees are collected through electronic payments I may encourage my clients to pay via that method. Not implying cooking the books, we have too many red flags for an audit and I can only sleep with a clean conscience, just don’t want more tax forms. I am just happy no one wants to pay me with credit cards.

[Brian Elfert]

The odds of one of us being audited is slim with so many unfilled irs positions. They are required, by law, to audit the presidents returns every year and have not done so for at least two years.


The information I found is that Biden's 2020 and 2021 returns were audited by the IRS. The Bidens were paid an additional refund for 2020 of an unspecified amount and owed an additional $13 for 2021. The presidential audit program is merely an IRS policy and not required by law. Congress wants to make a law that a presidential audit happens yearly.

It seems like a bunch of wasted IRS auditor time. What US president is going to be stupid enough to cheat on his/her taxes while president?

[Tom M King]

I can think of one.

[Bill George]

The information I found is that Biden's 2020 and 2021 returns were audited by the IRS. The Bidens were paid an additional refund for 2020 of an unspecified amount and owed an additional $13 for 2021. The presidential audit program is merely an IRS policy and not required by law. Congress wants to make a law that a presidential audit happens yearly.

It seems like a bunch of wasted IRS auditor time. What US president is going to be stupid enough to cheat on his/her taxes while president?

I can think of one right off hand.

[Michael Weber]

I can also think of one.

[Alex Zeller]

Unless the IRS gets a new state of the art computer system the number of 1099K forms will flood them with too much information. Almost everyone who is not a business will just identify the sale as a loss. I think the IRS only requires you to keep sales receipts for 3 years so unless it can be proved that you owned it less than 3 years it'll be very hard for the IRS to come after people so they most likely aren't going to try. It'll still be a pain but hopefully one of the compromises that can be made in the federal government will be to scale it back to $10k.

[Ronald Blue]

Nothing changes with respect to the amount of tax you owe as a result of this change. The added burden on paypal will be pretty minimal, they already have the data.

I don't pretend to understand it all but it can absolutely change what you owe. If you bought that new planer for $2,000 back in 2000 and sell it today for 1500 and the buyer pays through one of the aforementioned apps if you can't prove you lost money on it you are going to be taxed. The app used is going to turn in a 1099 for the 1500 and you will have to prove you paid more. It's going to be a nightmare. Cash will be king for me but it usually is anyway.

[Lee DeRaud]

I don't pretend to understand it all but it can absolutely change what you owe. If you bought that new planer for $2,000 back in 2000 and sell it today for 1500 and the buyer pays through one of the aforementioned apps if you can't prove you lost money on it you are going to be taxed. The app used is going to turn in a 1099 for the 1500 and you will have to prove you paid more.
How hard is that to "prove", really? I suspect there will be (or already is) an IRS form you can fill out to attest to the price you paid. Unless you're actually in the business of selling equipment, it's pretty the same as stating a valuation for tangible-item charitable contributions.

[Ronald Blue]

How hard is that to "prove", really? I suspect there will be (or already is) an IRS form you can fill out to attest to the price you paid. Unless you're actually in the business of selling equipment, it's pretty the same as stating a valuation for tangible-item charitable contributions.

Pointless to debate something not in evidence at this time. I hope it's as easy as you think it will be. There are more unknowns than knowns at this point. We will see how the script unfolds. I just know I will deal with cash as I always have.

[Jim Becker]

Folks....stay away from the politics, please.

Jim
Forum Moderator

[Ken Combs]

Pointless to debate something not in evidence at this time. I hope it's as easy as you think it will be. There are more unknowns than knowns at this point. We will see how the script unfolds. I just know I will deal with cash as I always have.

I'll probably be dealing with this next year. But, IMHO it's not going to be a big deal. As stated earlier, receipts and other records are not mandated further than 3 years back. And the process to determine how to value items older than that is covered in this IRS pub: https://www.irs.gov/forms-pubs/about-publication-551

My plan is to record each sale in a little spreadsheet with the date of approximate date of purchase, the fair market value of the item as of that date and its selling price. The last info is the profit or loss. Too bad losses aren't allowed on personal property sales!

Probably won't ever need the info as the chances of audit on small potatoes is slim, if there are no items in the return that will cause a red flag by the processing program.

I've had to do a schedule C for years until recently so this is not a big deal.

What I don't understand about the 'new' IRS money is this: If most is to replace retiring employees why is any new/additional money required or spoken of as additional agents? Not a political question, just genuinely curious as the terms being used seem to be at odds with 'normal' budgeting terminology. I suspect the pro and con sides just bend the words to reflect favorably on their view.

Edit to add: I'll be reporting these items a Capital sales using form 8949 under the rules here: https://www.irs.gov/taxtopics/tc409

[Lee DeRaud]

What I don't understand about the 'new' IRS money is this: If most is to replace retiring employees why is any new/additional money required or spoken of as additional agents? Not a political question, just genuinely curious as the terms being used seem to be at odds with 'normal' budgeting terminology. I suspect the pro and con sides just bend the words to reflect favorably on their view.
My understanding is that it isn't just a question replacing retiring employees going forward, but also replacing the ones that quit/retired/whatever in recent decades and were never replaced. (Google "IRS staffing history"...I'm not going to post any links, as most of the hits seem to have heavy doses of political spin one way or the other.)

[Jim Becker]

That's correct, Lee. The agency was underfunded for a very long time and was unable to replace people and systems accordingly. That's what's important about the approved funding as it will help to get things back to what is supposed to be effective and normal functionality including for customer service. (disclosure...they were a customer of mine for about 9 years so I saw first hand just how things were internally, but cannot go into details for obvious reasons)

[Kev Williams]

So, back on topic a bit ;)

Last month we bought a '13 Escalade, and not wanting to mail, or drive to my CU to make a payment, I thought I'd give in and try Zelle... Their ad stated something TTEO "great way to send or receive up to $2500 at a time" among other things. So I entered my info, no problem. Searched if my CU was on their user list, YES. So I start a page, say I want to pay the CU, I enter the payment I want to make, $2500, hit enter, and---
EXHCXSCSHSXSHSSXXXS <think loud 'you lose' buzzer noise...

I only have $1000 left 'today' to send... uhh, what happened to $2500? So I change to $1000...
EXHCXSCSHSXSHSSXXXS .... Nope, you can't send yourself money!

uhh, what?? I really don't know why this happened other than in the 'nickname' of the payee I put "Kevin Williams Payment"...

So in the end, what happened is precisely and exactly what I expected to happen... FAIL... :mad:


I deleted the CU payee, and my new account, all of 10 minutes old, and I'll never get those 10 minutes back...

[Bill Dufour]

Completed my taxes with turbo tax the other day. They owe me a refund both state and federal. TT wants me to sign up for some unknown payment system. They do not seem to do direct deposit into my bank account. It has to go through this greenfrog or some such name. I gave up and told them to mail me a check.
No way i am going to give that info to some unknown third party. I am fairly sure it was not a scam site but who knows. Why take the risk.
Bill D

[Jim Becker]

The IRS will direct deposit for sure and TT filing for Federal is free. I've not been in the situation with the Commonwealth of PA since there is usually a few bucks owed there but I suspect the same may be true there, but I also mail state returns because I'm not going to pay to submit them electronically.

[Lee DeRaud]

Completed my taxes with turbo tax the other day. They owe me a refund both state and federal. TT wants me to sign up for some unknown payment system. They do not seem to do direct deposit into my bank account. It has to go through this greenfrog or some such name. I gave up and told them to mail me a check.
No way i am going to give that info to some unknown third party. I am fairly sure it was not a scam site but who knows. Why take the risk.
Bill D
Depending on the version of TT, there's a fee for the state filing ($15, maybe $20). They have an option of taking that fee from your refund, but that obviously involves the refund passing through them or some 3rd-party/affiliate. Could that be what was happening? Option B is paying Intuit the fee directly, but IIRC Paypal was one of the options to do that.

(As Jim said, I can't imagine a state not being able to refund directly to your account.)

[Curt Harms]

Brian, there are two main problem levels with the new Regs. First is the new and HUGE burden being placed on PayPal and Venmo and their lack of software, employees, structure, etc. to deal with the reporting requirements and do it correctly. Then, the IRS will get millions of 1099Ks on top of the millions they already get and, likewise, will not have the resources with which to deal with them correctly. With all the possibilities for human error, it would be hard to assume that this will all work as conceived.

You know they're trying to hire 87,000 new agents. A business I'm familiar with already set aside office space for IRS use, they get 'visits' that often. I'm sure some businesses get watched more closely than others because of potential for abuse - or maybe because nobody can figure out just what in heaven's name some tortuous rule really means.

[Keegan Shields]

That's great news in my opinion. When people and businesses cheat on their taxes, the people who are honest pick up the tab. And I say that as a business owner.