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.
THE FACTS: Current tax proposals and policies do not call for either of these actions. As part of its efforts to crack down on tax evasion by the wealthy, the Biden administration has proposed a policy aimed at reducing the tax gap and improving tax compliance.
Under this proposal, financial institutions — which are already required to report to taxpayers and the IRS when bank accounts earn interest that exceeds $10 — would also document the total amount deposited and withdrawn from personal and business accounts annually.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. But 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.”
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.”
— Associated Press writer Sophia Tulp in Atlanta contributed this report.