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Fact or fiction: Could you soon owe taxes on Venmo transactions?

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Posted at 4:01 PM, Sep 30, 2021
and last updated 2021-09-30 16:01:06-04

PHOENIX, Ariz. — It's important to double-check the information in Facebook posts and on social media because sometimes it's misunderstood or outright wrong.

A series of posts on Facebook recently began circulating that suggested the Biden administration was looking to tax payments made on internet platforms, like Venmo, PayPal, and Cash App, that are more than $600.

However, that is not necessarily correct.

"What the debate is about is a proposal to increase the amount of information the IRS can get. It's not about changing whether or not something is subject to tax or not," said Erin Scharff, an assistant professor of law at Arizona State University's Sandra Day O'Connor School of Law.

She said most people pay their taxes honestly because employers report their income to the IRS on an employees' W-2 forms.

The recent Biden administration proposal - and it's only a proposal - is aimed at tracking the income that's not reported by employers, which the IRS amounts to $166 billion in lost tax revenue each year.

At the most basic level, the proposal calls for your bank and other platforms you use, like Venmo, PayPal, or Cash App, to create a report that is sent to the IRS every year that shows "inflows and outflows with a breakdown for physical cash, transactions with a foreign account, and transfers to and from another account with the same owner."

What is not clear is how the IRS would use this information when we all file our taxes.

For example, if you split rent with a roommate and use an app to pay, would that cause a red flag or trigger an audit for the roommate who is receiving the money?

Scharff said it could work as a W-2, holding people accountable for the income taxes they legally owe, not creating new ones.

"If you earn income, because you're being compensated for services, or you're selling property, and that property is being sold at a gain to you, that's income," said Scharff, something you are legally responsible to pay no matter how you receive the money or which platform you use.

She said splitting rent is not income, it's a shared expense, which means it cannot be taxed.

This proposal would impact accounts that see transactions totaling $600 or more in a year, but again, at this point, it is only a proposal. A lot of specific logistics have not been announced yet.

You can read the full proposal, along with the other tax revenue proposals, at https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf (page 94 for the tax proposal).

This story was originally published by Monica Williams and Joe Ducey at KNXV.

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