As is often the case with new tax legislation, unexpected and confusing surprises arise. Leaving a bevy of taxpayers scratching their heads.
The latest example of this all too common happening is a surge in casual internet resellers receiving tax forms related to their online transactions.
So, What’s Going On Here?
Let’s say you sold an old mountain bike or guitar amplifier on eBay or Craigslist. You may receive a 1099-K form from the IRS, depending on the transaction value.
Why Is This Happening?
The American Rescue Plan changed regulations for online marketplaces and payment services.
In the past, entities such as eBay and Poshmark, along with payment services, including PayPal and Venmo, were only required to send 1099-K forms to users who logged more than 200 transactions or earned more than $20,000 in annual income.
The intention was to capture tax revenue from income earned by businesses using these platforms either as marketplaces or payment processors while avoiding sales transactions made by individuals looking to off-load junk cluttering up their garages.
The Rise of The Gig Economy
With a massive uptick of freelance and” “gig economy” workers, especially since the pandemic completely reshuffled a vast swath of the workforce, the government is looking to capture a great measure of tax revenue from self-employed workers.
But Here’s The Thing…
You DO NOT owe taxes on these transactions. The new rules strictly apply to online businesses and freelance workers using these marketplaces and payment services to manage their operations.
It does not apply to individuals reselling old belongings. For example, let’s say you bought a Macbook brand new for $1,800 and resell it four years later for $800. You don’t owe any taxes on that transaction.
Zelle Is Exempt
Whether you look at this as a “pro tip” for freelance workers or a convenient workaround for those selling old belongings online, Zelle transactions are not subject to the new rules.
Why? Zelle, which is exclusively owned and operated by a group of major banks, handles “bank-to-bank transactions” and doesn’t manage fund “settlement.” Meaning Zelle transactions are considered “account-to-account transfers” rather than direct payments.
Of course, if you’re being paid for goods and services under the auspices of your business through Zelle, that income is subject to income tax. But how or whether you report Zelle transactions is at your discretion.
Confused By The New Tax Code?
If you’re confused or have questions about new tax regulations ushered in under the American Rescue Act or other recently passed legislation, get in touch for a FREE consultation!