Peirspictiochtai Ar An Saol
This is the façade of the headquarters of the Internal Revenue Service Building facing Constitution Avenue in Washington, DC. (This photograph was provided courtesy of the U S General Services Administration.)
If you receive $5,000 or more during Year 2024 through "Payment Card and Third-Party Network Transactions," you'll be receiving a Form 1099-K detailing those payments. That Form 1099-K will likely be sent to you in January of 2025.
The Internal Revenue Service (IRS) will also get a copy of your Form 1099-K.
Businesses that provide "Payment Card and Third-Party Network Transactions" include a number of digital platforms utilized by many Americans.
Etsy, Ticketmaster, and Vrbo are a few examples of these digital platforms.
The parameters for reporting funds paid to individuals through these types of digital platforms will change again for Year 2025.
If you receive $600 or more during Year 2025 through "Payment Card and Third-Party Network Transactions," you'll be receiving a Form 1099-K detailing those payments. That Form 1099-K will likely be sent to you in January of 2026.
The IRS will also get a copy of your Form 1099-K.
According to leaders of the Federal government, these changes are designed to improve voluntary compliance with the tax code.
In other words, leaders within the Federal government want to encourage Americans to embrace the accountability to report their total income to the Federal government and to accept the responsibility to then pay their income taxes that are due to the Federal government.
Leaders of the Federal government understand that a number of Americans have "forgotten" to report their total income. That "forgetfulness" has thus led to those Americans not paying all of their Federal income taxes due on that "forgotten" income.
The changes planned for Year 2025 were initially planned for implementation for Year 2022, but the Internal Revenue Service made decisions in 2022 and 2023 to delay full implementation of these changes.
"As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year," noted a statement issued by the IRS on November 21, 2023. "This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn't expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023."
The IRS indicated that the delay in implementing this section of the American Rescue Plan Act of 2021 was based on feedback received by the Federal agency.
"We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements," said Danny Werfel, Commissioner of the IRS. "Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It's clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals, and others in this area."
Put aside for a moment how payments have been made to individuals for products and services.
Forget about the internet, mobile telephones, apps, and other digital platforms.
Forget about funds received through "Payment Card and Third-Party Network Transactions."
When you got paid $25 – $25 in cash – each time you cut the grass for your neighbors, you were accountable to report that income to the Federal government. You were also responsible to pay Federal income taxes due on the income you earned doing landscape work.
As for those beautiful pieces of art you created and then sold – sold for cash – at the local market, you were accountable to report that income to the IRS. You were also responsible to pay Federal income taxes due on the income you earned selling your artwork.
Payment through digital platforms did not change your accountability to report all of your income and did not alter your responsibility to pay Federal income taxes due on that income.
The difference today is that the Federal government can require the digital platforms to report to the IRS the payments made to you through "Payment Card and Third-Party Network Transactions."
Not only can the Federal government do that, the Federal government has been doing that for years.
Prior to 2021, the United States Congress had passed legislation requiring those digital platforms to report payments that they made to individuals. The difference was that the prior legislation only required reporting of Americans who received $20,000 or more AND where those payments involved 200 or more transactions.
With some exceptions, payments made to individuals that did not meet both requirements – the amount received and the number of transactions involved – did not get reported to the IRS.
Reports were generally not filled with the IRS detailing those that were paid $20,000 or more and had 199 or less transactions.
Reports were generally not filled with the IRS detailing those that were paid $19,999 or less and had 200 or more transactions.
In either situation, you still were accountable to report your total income.
In either situation, you still were responsible to pay the Federal income taxes due on your income.
Yet, a number of Americans "forgot" about their responsibility and "overlooked" their accountability.
One interesting aspect of the new law helping to "cure" the "forgetfulness" of Americans can be found in Section 9674 of the American Rescue Plan Act of 2021.
Under the subtitle of "(B) Exclusion of foreign persons," the American Rescue Plan Act of 2021 states that "Except as provided by the Secretary [of the Treasury] in regulations or other guidance, such term shall not include any person with a foreign address. Notwithstanding the preceding sentence, a person with only a foreign address shall not be treated as a participating payee with respect to any payment settlement entity solely because such person receives payments from such payment settlement entity in dollars."
Details on the "Exclusion of foreign persons" and how such people "…shall not be treated as a participating payee…" are not listed on the website of The White House highlighting the American Rescue Plan Act of 2021.
The next edition of Peirspictiochtai Ar An Saol will provide further details on ways in which individuals can determine and document whether the payments received through digital platforms are actually income for which taxes are due.
A caveat: Please contact the IRS or an accountant, attorney, or another tax professional of your choice to determine what your personal responsibilities are regarding taxes.
Peirspictiochtai Ar An Saol – Gaelic – Irish – for "Perspectives On Life" is a column focused on aspects of accountability and responsibility as well as ways people look at life.
Contact Richard McDonough at PeirspictiochtaiArAnSaol@protonmail.com.
© 2024 Richard McDonough