A new tax form is coming your way

https://www.wsj.com/articles/internal-revenue-service-taxes-irs-1099-k-form-tracking-payment-transactions-credit-card-venmo-privacy-breach-cybersecurity-11648745007?

If You Dread the IRS Now, Wait Until You Get a 1099-K

Under a new law, many more transactions are being tracked. Next tax season will be a nightmare.

By Ryan Ellis, March 31, 2022 6:04 pm ET

PHOTO: GETTY IMAGES/ISTOCKPHOTO

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In the best of times, the Internal Revenue Service is tough to deal with, and tax season is never fun. But the past few years have seen the IRS lurch from one crisis to another. And things are about to get much worse for millions of taxpayers.

In 2021 Congress expanded the reporting requirements of the obscure Form 1099-K. This information-reporting form tracks business transactions done with a credit or debit card or such peer-to-peer services as Venmo and Paypal.

Prior to the change, taxpayers received a 1099-K only if they processed more than 200 business transactions, amounting to more than $20,000, in the course of a year. Congress removed the transaction threshold and lowered the payment threshold to $600.

As a result, millions of taxpayers who have never seen a Form 1099-K will be receiving them. While no one knows how many Americans will be getting these forms, tax lobbyists estimate the number at as high as 20 million.


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This won’t happen until next tax season, but card processors and peer-to-peer networks are already collecting information on their customers for the IRS—an incredible breach of privacy. Congress rushed this provision into law as part of the American Rescue Plan Act of 2021, and it was never vetted in tax and accounting communities.

The biggest issue is that millions of Americans won’t see this coming. They’ve never received a 1099-K and won’t know what to do with it. While the lower reporting thresholds were meant to bring full-time Uber drivers and serial Airbnb landlords into compliance, the net was cast too wide. As a result, someone who opened a Venmo account years ago and checked the business option will now be getting a 1099-K for all the split bar tabs, rent, and other personal expenses on Venmo throughout 2021. Imagine using your Paypal account to facilitate paying for a vacation, only to get a tax form in the mail.

Another issue is duplicate reporting. Some business owners will get a 1099-K from their transaction service and another 1099 from the client who paid them. Business owners will have a pile of 1099s that exceeds the actual gross receipts for their business, which any tax pro will tell you is audit bait.

What about people who sell small items on platforms like EbayEtsyFacebook or Amazon ? A few baseball cards or vintage “Star Wars” toys won’t escape the 1099-K. While these taxpayers have always had to report profits from whatever source derived, the 1099-K could easily give the impression that taxes are due on the gross sales amount, not just the profit earned on the sale—often negative in the case of collectibles.

The IRS is in no condition to administer this logistical nightmare. It is currently unwinding a disastrous and intrusive login regime that requires taxpayers to send a photo to access their own tax information. Over the past two years the agency has suffered the largest data breach in its history, with the leak of famous taxpayers’ sensitive documents to a news website (a crime still unsolved).

This is the same IRS that can’t answer its own 800 number, can’t catch up to a backlog of tax returns, and can’t stop its antiquated computers from sending out duplicative tax notices to millions of Americans. The agency is in no position to administer a new 1099-K regime that will capture the economic activity of tens of millions of Americans. The IRS has had to pull auditors and other employees to answer the mail backlog this year. What will it do next year when the 1099-K forms and questions come rolling in?

Last year the Biden administration’s proposal to have banks report aggregate deposits and withdrawals over $600 on 1099-INTs was rejected by the public and Congress. Congress should fix the 1099-K problem, but it doesn’t have much time. Information is already being collected on us, and by next tax season it will be too late to avert this catastrophe.

Mr. Ellis is president of the Center for a Free Economy and an IRS enrolled agent.

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