Payments via PayPal, Venmo and Zelle

[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