Getting Paid Venmo Paypal from Ken Berry and the CPA Practice Adviser

If your small business receives payments from Venmo, PayPal or other third-party network, you could be in for a rude surprise next year. Under a little-publicized provision in the American Rescue Plan Act (ARPA), providers must begin reporting to the IRS business transactions totaling $600 or more, just like most employers. This could create some unexpected hassles for entrepreneurs who use one or more of these apps to conduct business. The ARPA change takes effect on January 1, 2022.

Previously, third-party providers faced less-daunting challenges. They only had to send out 1099-K forms when an account had 200 or more business transactions during the year totaling at least $20,000. The new ARPA reporting requirement broadens the application significantly.

Of course, this rule change doesn’t change the tax consequences for recipients. If you receive payment for business services or goods that you furnish, you were already liable for federal income tax on that amount regardless of whether you’re paid in cash or by check, credit card, app or some other means. On the flip side, you’re certainly entitled to claim deductions for your qualified business expenses that can offset the tax that you may owe.

ARPA aims to clamp down on business-people, particularly those operating in the gig economy like Uber and Lyft drivers and airbnb landlords, who haven’t been reporting all of their taxable business income. But rest assured it doesn’t affect casual and personal transactions made through one of the third-party networks. For example, if you’re being reimbursed by friends for the tab at a restaurant or for tickets to a sporting event or concert, you’re in the clear. This won’t result in any taxable income.

Nevertheless, the new reporting requirement could lead to some tax complications.

Notably, the third-party network may not be sure if a transaction is personal or for business. If it issues a 1099 to you for a charge in a gray area, it’s up to you to prove tat this isn’t a taxable event if the IRS imposes tax.

What’s more, you might, and probably will, receive some duplicate 1099s for the same goods or services. This could occur, for example, if you get a 1009-MISC or 1099-NEC from a customer or client and a 1099_K from the third-party provider. Again, the onus is on you to establish the existence of just one business transaction for the event.

What can you do about it? Not a whole lot for now. Expect Venmo, PayPal and the other the third-party networks to start asking for more information to clarify the nature of your transactions. (BTW: PayPal now owns Venmo.) And they will be requesting your vitals— such as an Employer Identification Number (EIN), Individual Tax ID Number (ITIN) or Social Security Number (SSN)—that they will be sharing with the IRS.

One possible solution is to use separate accounts:earmarked for business and personal transactions. That will give you more credibility if the IRS ever comes calling. Bottom line: many Venmo and PayPal users won’t be flying under the radar any longer.

Contact your adviser.

Build Back Better Acct Proposed tax Law Changes

From CCH....

Congress and the Biden Administration are locked in ongoing negotiations over the budget reconciliation bill, the Build Back Better Act (BBBA), which, if enacted in its present form, would significantly impact planning for estates and high-net worth individuals. The final form and effective dates of these proposals are subject to change as the proposal makes its way through Congress and provisions and effective dates are altered to gain legislative approval or to achieve revenue goals.Proposed Corporate Rate Changes

Among the highlights of the proposal is change in the income tax rate applicable to corporations, with a shift back towards graduated rates. Currently, a 21 percent flat rate applies to corporations, regardless of income amounts. Under the proposal, the rate would increase to 26.5 percent on corporate income in excess of $5,000,000. Income between $400,000 and $5,000,000 would retain a 21 percent tax rate, while income below $400,000 would be taxed at 18 percent. A three percent surcharge would apply to incomes in excess of $10,000,000, up to surcharge tax of $287,000.

Proposed Individual Rate Changes

As long promised by Democratic lawmakers, as well as President Biden during his campaign, individuals would also see tax increases under the proposal.  But only those making in excess of $400,000 a year would see a change.  Under the proposal, the current 37 percent rate bracket would be increased to 39.6 percent (the top rate in effect prior to the Tax Cuts and Jobs Act), and would be expanded to begin at $400,000 (in the case of unmarried taxpayers). Currently, unmarried taxpayers are at least partially taxes at 35 percent for income over $400,000. The low point of the bracket is slightly increased for joint filers and heads of households. 

Income tax Surcharge

The BBBA would apply a three-percent tax on modified adjusted gross income of individuals, estates and trusts in excess of certain amounts.  Theis would eeffctively dribve the top rate to 42.6 prercent.

Capital Gains Rate Changes

The capital gain rates, which currently are set at the top rate of 20 percent for taxpayers in the highest ordinary income tax brackets, would be changed to align with the new proposed ordinary income tax brackets. Additionally, the 20 percent rate is proposed to increase to 25 percent.

Net Investment Income

The proposed legislation expands the scope of the net investmnet income (NII) tax of 3.8% to include "all business income", which would iinclude income derived from active participation in S corporations and LLCs and partnerships.  This rate of 3.8% would efftively drive the overall highest tax rate to a whopping 46.4%.    

Additional Changes

The proposal includes several other changes applicable to businesses, including the limitation of business interest expense and taxation of foreign income, as well as some changes to IRS funding and IRAs. Notable, no changes to the deduction of state and local taxes are included.

Payment Status #2 – Not Available Problem with Stimulus Checks

Taxpayers who have recently checked the status of their 2nd stimulus check with the IRS Get My Payment tool and o have received the message “Payment Status #2 – Not Available” will not receive a second stimulus check automatically, the IRS has stated. 

The agency has started automatically depositing and mailing out millions of the the second economic impact payments, worth up to $600 for individuals and each of their child dependents.

And while many Americans have received their second stimulus payments as was intended, the IRS now says that people receiving the "Payment Status #2" message on the Get My Payment tool may have to wait until they file their 2020 taxes to get the payment, even if they've received the first stimulus check with no issues. 

“The IRS advises people that if they don’t receive their 2nd Economic Impact Payment, they should file their 2020 tax return electronically and work thorugh the return to claim the Recovery Rebate Credit (line 30 of the current form draft) to get their entitled crdit (in lieu of a direct payment) and any resulting refund as quickly as possible,” notes the agency.

A spokesperson for the agency did not clarify why this is the case or why the issue seemed to affect those who had filed their 2019 taxes through H&R Block and TurboTax in particular.