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...ing-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.

[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

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]

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.

[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.