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IRS takes aim at Americans' earnings from Venmo and PayPal, dispatches 30 million new tax forms

House Ways and Means Chairman Jason Smith's office raises alarm that tax agency "has no plan on what to do with the new information" it will collect with the new forms.

Published: November 17, 2023 11:00pm

Updated: November 18, 2023 6:14am

A new Government Accountability Office (GAO) report shows that the Internal Revenue Service for the first time will be sending out 1099-K tax forms to about 30 million Americans for earnings paid through Venmo and PayPal.  

House Ways and Means Chairman Jason Smith, R-Mo., responded: "Thanks to Democrats, more Americans who mow lawns or sell concert tickets and used couches through Venmo or PayPal will have those transactions scrutinized by the IRS starting in January 2024 thanks to a lower reporting threshold for IRS form 1099-K," read an analysis from Smith's office on Thursday.

"A new report from the GAO shows that the IRS will send at least 30 million new 1099-K tax forms to Americans’ mailboxes come January, even though the agency has no plan on what to do with the new information – and it is unlikely most Americans will understand how to fill them out," his office also said.

According to the GAO report, the IRS "expects to receive about 44 million Form 1099-Ks in 2024—an increase of about 30 million. However, this estimate may change as IRS receives more information from large filers and states."

The report concluded that the IRS "does not have a plan to analyze these data to inform enforcement and outreach priorities," which "limits its understanding of changes in taxpayer burden."

Smith described the policy, which is tucked inside the Democrats' nearly $2 trillion American Rescue Plan Act, as "misguided" because it lowers the annual threshold from $20,000 to $600 for Americans to report transactions from third-party payment platforms. 

"This goes after hairdressers and your neighbor’s kid, not billionaires, and will create a digital trail for IRS agents to monitor more Americans regardless of whether these individuals actually owe any taxes on the payments they received," he said.

Smith also said the GAO report is a warning that more middle class taxpayers will likely be subject to IRS audits. 

“Thirty million more tax forms flowing into mailboxes across the country will be a new years nightmare for millions of Americans and a mess for the IRS. The Biden Administration itself had to deploy a legally dubious delay of this policy for a year precisely because it is unworkable," Smith said in a statement.

"The whole plan is just another effort by Washington Democrats to use the IRS to target working families. According to the Joint Committee on Taxation, over 90 percent of this new tax burden will fall on middle-class families and gig workers who will be caught in the crosshairs of the Democrats’ tax scheme," he added.

Smith said the GAO report clearly shows the agency does not have a clear plan how to use the information it is collecting.

Smith referred to the new forms as an IRS "surveillance scheme" imposed by the Democrats.

The Tax Policy Center noted that the lower threshold of $600 especially impacts small businesses and gig workers in addition to "casual" Venmo and PayPal users.

"Without better outreach and communication from the IRS, the new threshold might drive more otherwise law-abiding taxpayers to work around the reporting rule," wrote Renu Zaretsky in an analysis posted on the organization's webpage.

A press release from credit card giant Visa published a study earlier this year finding that "59% of small businesses surveyed said they already are, or plan to, use only digital payments within the next two years – largely in step with 41% of consumers surveyed who said the same."

Smith also said the GAO report is a warning that more middle class taxpayers will likely be subject to IRS audits. 

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