Caroline Bruckner, American University Kogod School of Business Tax Professor & Kogod Tax Policy Center Managing Director, joins Yahoo Finance Live to discuss the IRS' latest tax policy changes regarding payment platforms, how the agency will distinguish taxable income, and 2023 tax returns.
- Welcome back to Yahoo Finance Live. If you're a user of Venmo or PayPal, you know how digital payments might work. But when it comes to the tax implications there for the people you might be paying, the rules-- they are a-changin' this year as the IRS looks to get maybe a bit of that. And for more on that, I want to focus in on the changes as part of our "Taxes Made Simple" series presented by TaxAct here. And joining us to discuss is Caroline Bruckner, American University Kogod School of Business tax professor and Kogod Tax Policy Center managing director.
And Caroline, good to be chatting with you again. Obviously, this doesn't impact anybody-- or I should say everyone who uses Venmo or PayPal, but specifically those power users that might be using it to settle business transactions. So what should they know about all this?
CAROLINE BRUCKNER: Well, first of all, the new rules go into effect for transactions you engage in in 2022. So when you go to file your return in April of this year, it's going to be the same rules that were in effect for last year. So you might not get this new 1099-K unless you had $20,000 and 200 transactions. The new lower threshold for $600 of transactions for business transactions kicks in, and you're going to need it, and you're going to get a 1099, for your 2023 tax return.
- I wonder what you think this says about the shift that we've seen in the economy. I mean, this is-- largely, it is about independent workers, contractors, and, you know, the fact that the IRS is now addressing this. What do you think that says about the shift that's happened?
CAROLINE BRUCKNER: Well, I think there are a couple of things going on. Number 1, there has been a huge shift to people doing more independent contract work. And they have adopted these payment platforms for payment.
MBO Partners put out a survey late in 2021 that found that there are now 51 million people engaged in independent contract work in 2021. That was an increase of 34% from the prior year. And people are getting paid from using these online payment platforms. It's the most convenient way to pay anybody. And the tax rules have needed to be updated in order to account for those changes both in how we work and the millions of more people that are doing independent contract work.
- Yeah. You know, Caroline, it's interesting because we were just having a discussion about maybe what the government might know if we get some more these digital payments in the future. And, you know, I tip my barber. I tipped him on Venmo. And, you know, I wonder how they might look at things like that when it's not necessarily clear that it's a transaction, but is, I guess, for business.
CAROLINE BRUCKNER: So that's a great point. It is the service provider or seller who is responsible for tracking those business transactions. Folks need to keep an eye on what is income and what is taxable income versus what is just paying somebody back because they paid for dinner. That kind of peer-to-peer transaction isn't a taxable transaction and isn't something that needs to be reported to the IRS. But if you were getting paid or tipped for services that you provide, that very well be made-- that very-- won't be taxable income to you. And you need to report it to the IRS.
- Caroline, I don't know if you have this number. But, you know, you mentioned just how many people are actually transacting on Venmo. That shift has been happening. And I wonder, from an IRS perspective, what this means from a revenue standpoint.
CAROLINE BRUCKNER: Well, when this tax change was included in the American Rescue Plan in March of 2021, the Joint Committee on Taxation, which is the Congressional committee that's responsible for assessing how much revenue this kind of tax change is going to be in-- is going to bring in, found that it would raise about $8.4 billion.
- Wow. There's nothing-- that's nothing small there, I guess, in terms of the impact for a lot of people who may have not been thinking about the tax implications here on their individual front, but something that adds up to a big number there. Caroline Bruckner joining us for more on all that-- appreciate it. We'll be watching as that story plays out-- joining us from American University Kogod School of Business Tax Center there.