Does your small business make or receive payments using cash apps like Venmo, PayPal, Zelle, or CashApp? If so, you might want to pay close attention to a policy change that was included in the American Rescue Plan Act of 2021, as well as a proposed plan that may yet be part of the Biden administration's $3.5 trillion infrastructure plan. Both are causing significant consternation among the business community.
First let's look at the proposed shift, which was removed from consideration but has a strong potential for making a comeback at a higher threshold. The original plan would have changed the already existing $10,000 Currency Transaction Reporting requirement level from $10,000 to just $600. That would have meant that instead of banks and other financial institutions only reporting transactions of more than $10,000 to the IRS, they would have had to report every single requirement involving $600 or more.
It doesn't take much effort to realize exactly how much of an uptick in reporting that would represent, nor much imagination to see the potential risk it would present or the burden it would place on the nation's banks. The concerns expressed by Jackson Hataway, Missouri Bankers Association executive vice president of member services summed it up nicely when he said, “While we can appreciate the objective goal of trying to track down more revenues from people who are dodging the tax system, this methodology for doing it is unproven, it's unsound, and honestly in a world of data breaches, where we see the IRS and other agencies constantly dealing with cyber struggles, the thought of all of our account information flowing into an entity that can't keep data secure, should reasonably be something that we're all deeply concerned about.”
The Biden administration has pushed back against these objections, calling the proposal “a way to catch people moving money around from unreported sources” and “uncover tax dodging by the wealthy.” But $600 is a bridge too far for those in the business community, and over 40 trade associations and the U.S. Chamber of Commerce are strenuously objecting to the “intrusive” proposal, raising the specter of privacy violations and increased tax preparation costs for small businesses, among other concerns.
The outcry about the proposed changes may have been exacerbated by passage of another already-codified change that is sure to impact both small businesses and private individuals. As part of the American Rescue Plan of 2021, cash app businesses and others that provide third party payments saw the $20,000 aggregate payment/200 transaction threshold that had previously been in place cut to just $600 in aggregate payments. This change, which will take effect on January 1st of 2022, is likely to have a dramatic impact on small businesses, as well as anybody who receives annual payments of over $600, with no minimum transaction number. This means that 1099 forms will be sent out to every individual who receives these types of payments – something that could be a complicating factor whether you are a small business or an individual reimbursing a roommate for paying the rent or groceries.
About Bob Mason, CPA
Santa Cruz based Bob Mason, CPA (Coast Financial Services) has been providing the people of Santa Cruz with years of expertise in the tax and accounting industry. He provides a broad range of accounting, bookkeeping and small business services to help your business succeed. Using their expertise in technology they have built an intuitive website with useful tools and calculators and a monthly blog which they post to on a frequent basis. Check back weekly for their next tax or accounting topic.
