(RoyalPatriot.com )- It is possible that small enterprises, independent contractors, and gig workers have discovered a loophole that allows them to avoid reporting money received through peer-to-peer (P2P) apps like Venmo and PayPal. This might be costing the government tens of billions of dollars in tax revenue.
Zelle, a bank-to-bank payment service that does not store funds, is the exploitable gap in the system. According to Bloomberg, Zelle asserts that a new IRS tax rule that went into effect on January 1, 2022 does not apply to the company’s payments because of the way the company is structured.
According to this rule, third-party payment processors like Venmo and PayPal are required to deliver 1099-K forms to any customers who have received more than $600 in payments via their applications, and they must also file these forms immediately with the Internal Revenue Service (IRS).
According to Bloomberg, prior to the rule, Venmo and other apps would only issue 1099-Ks to users whose total gross payments over $20,000 and who had completed more than 200 of these types of transactions. The criteria have been lowered significantly, which has led to a large number of small business owners and gig workers flocking to Zelle in the hopes that they will not be required to record revenue that they get through the platform.
“A lot of individuals believe that what they’re doing is simply a side gig or that they’re insignificant, so they don’t see why they should pay taxes.
According to Bloomberg, Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, said. My impression is that the percentage of noncompliance among small enterprises is very high.
He cited a research conducted by the Internal Revenue Service (IRS) for the years 2014-2016, which estimated that unreported individual and small-business operations cost a total of $144 billion in taxes annually. According to the findings of the analysis, less than half of the income that isn’t automatically reported for Americans is actually reported by them.
The Internal Revenue Service has made it quite clear that anyone who receives business payments on a P2P network such as PayPal, Venmo, or Stripe must declare that revenue. Zelle, on the other hand, makes things more complicated because it is built into the bank dashboards of users and is managed by Early Warning Services LLC.