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Online posts misrepresent scope of tax proposal, policy

October 13, 2021 GMT

CLAIM: A new tax policy allows the IRS to “monitor all transactions involving bank accounts worth more than $600.” Another new policy taxes all payments of more than $600 made through applications like PayPal and Venmo.

AP’S ASSESSMENT: False. Experts say current proposals and policies do not call for either of these actions. A proposal expanding banks’ IRS reporting requirements would allow the agency to see the total amount deposited and withdrawn annually from most bank accounts, but not individual transactions. A separate policy set to take effect in January 2022 will require mobile payment apps and users to report information about commercial transactions to the IRS. It will not impose an additional tax and will not apply to payments such as reimbursements between family and friends.

THE FACTS: As part of its efforts to crack down on tax evasion by the wealthy, the Biden administration has proposed a policy they say aims to reduce the tax gap and improve tax compliance. The proposal is being offered as a way to help pay for a $3.5 trillion social spending bill that would invest in climate programs, child care and education, The Associated Press has reported.

Financial institutions are already required to report to taxpayers and the IRS when bank accounts earn interest that exceeds $10. This proposal would require banks to also document the total amount deposited and withdrawn from personal and business accounts annually. The requirement would not extend to bank accounts that have less than $600 in transactions per year or contain a balance of less than $600.

The Biden administration argues this data may give the IRS a better sense of who might be receiving large incomes that they aren’t reporting.

Social media users and some critics of the plan have mischaracterized the aim of the proposal, spreading falsehoods about the type of data that would be provided to the IRS. Claims the proposal would allow “direct access to your bank transactions” are incorrect. Banks would not be able to report individual transactions to the IRS.

“The statement that has been making the rounds that the IRS will be monitoring every transaction is extremely misleading,” said Samantha Jacoby, a senior tax legal analyst at the Center on Budget and Policy Priorities. “The only thing that the IRS would have access to is two new numbers, total gross inflows and gross outflows for the whole year.”

Jacoby added that the reporting threshold is set low to keep people from splitting up their money in many different accounts in order to evade the regulation, not to target low-income individuals.

Claims that this plan has been made into law are also false. The suggested new rules remain in proposal form and are still being discussed. In recent days, House Ways and Means Committee Chairman Rep. Richard Neal, a Democrat from Massachusetts, has suggested the reporting threshold could change from $600 to $10,000.

Additionally, some social media users have made a separate false claim alleging that new taxes will be placed on people who use third party payment apps including Zelle, Cash App, Venmo or PayPal.

This stems from a misunderstanding of a provision in the Biden administration’s American Rescue Plan Act, an economic stimulus bill that was passed in March and is set to go into effect in January 2022, according to Steven Rosenthal, a senior fellow at the Tax Policy Center.

That policy requires a tax form called a 1099-K to be filed for business owners earning $600 or more a year on payments that are received through third party applications.

The rule does not apply to noncommercial payments like reimbursing someone for food or rent or other one-off transactions such as selling an old piece of furniture, Rosenthal said.

“The American Rescue Plan requires Venmo and PayPal and others to report commercial transactions, those are transactions for the sale of goods or services to any seller whose receipts exceed $600,” Rosenthal told the AP. “That’s merely information reporting. It does not impose any tax liability on its own.”

Rosenthal says this reporting requirement for transactions made through third party applications has been law for years, but the amendment under the American Rescue Plan narrows the reporting threshold from $20,000 to $600.

“There’s no new tax, it was always taxed,” Rosenthal added.

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This is part of AP’s effort to address widely shared misinformation, including work with outside companies and organizations to add factual context to misleading content that is circulating online. Learn more about fact-checking at AP.