PHOENIX, Ariz. — It’s important to double-check the information in Facebook posts and on social media because sometimes it’s misunderstood or outright wrong.
Recent Facebook posts indicated that the Biden administration was seeking to tax online payments, such as Venmo, PayPal and Cash App that are greater than $600.
But that is not always true.
“The debate is about a proposal to increase IRS’s ability to obtain more information. “It’s not about changing whether something is subject tax or not,” Erin Scharff, assistant professor of law at Arizona State University’s Sandra Day O’Connor School of Law said.
According to her, most people pay taxes truthfully because their employers report their income on W-2 forms.
Biden’s recent proposal – although it’s just a proposal – is designed to track the income that’s missing from employers. The IRS loses $166 billion annually in tax revenue due to this.
At its most basic, the proposal asks that your bank and any other platforms, such as Venmo or PayPal, create a report each year showing “inflows & outflows with a breakdown of physical cash, transactions at foreign accounts and transfers from and to another account owned by the same owner.”
It is unclear how the IRS will use this information to file taxes.
If you share rent with a roommate, and they use an app to pay the rent, will that raise a red flag? Or trigger an audit of the roommate who receives the money?
Scharff stated that the app could function as a W-2 and hold people accountable for any income taxes they owe.
Scharff said, “If you earn income because you’re receiving compensation for services, or that property is being purchased at a profit to you, that’s Income.” This means that you are legally responsible for paying any income taxes, no matter how the money was received or what platform you used.
She explained that rent split is not income. Instead, it is a shared expense. This means it can’t be taxed.
Accounts that have $600 or more transactions per year would be affected by this proposal, however, it is just a proposal. Many details have yet to be announced.
You can read the full proposal, along with the other tax revenue proposals, at https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf (page 94 for the tax proposal).
Original publication of this story by Monica Williams and Joe Ducey, KNXV.