HARRISBURG, Pa. — Do you have more than $600 in your bank account? Well, that money could now raise a red flag, giving the government the right to track your spending.
A new proposal is causing controversy—and has lawmakers, constitutions, and financial institutions deeming it the new “snooping proposal.” The bill, which was initially introduced in the spring, would require financial institutions to provide the Internal Revenue Service with additional information on bank accounts with more than $600 in annual deposits or withdrawals.
An amount many pointed out was relatively small.
More recently, after receiving backlash, the U.S. treasury introduced a new threshold that all accounts with more than 10,000 dollars in transfers in a given year would be flagged for reporting to the IRS.
The reasoning, the Biden administration is arguing that tax cheating adds up. The administration argues that the country loses roughly $600 billion in unpaid taxes every year, with the wealthiest 1 percent responsible for an estimated $163 billion.
Currently, the federal government has vowed that wage and salary deposits won't count toward that threshold and audits on families making less than $400,000 will be protected from excessive audits.
However local lawmakers say this is a slippery slope, as banks would begin reporting the following on flagged accounts:
- The total amount of money flowing in and out of an account
- Breakdowns for foreign transactions
- And transfers to the same account holder
Senator Kristin Phillips-Hill (R) of York County said she is concerned about the security of the overwhelming data that would now be collected.
“The IRS and the federal government have no business snooping in anyone's financial bank records; and let's not forget that the IRS has a notorious track record of data breaches,” Phillips-Hill said.
While some Pennsylvania lawmakers are continuing their push to stop such a measure, with the Senate of Pennsylvania sending letters indicating its disapproval of the Biden Administration’s tax snooping plan to every member of the Commonwealth’s U.S. Congressional delegation, as well as President Biden and various members in U.S. Senate and House leadership. Another financial tracking measure is already set to take place in January.
The federal government is cracking down on your spending, a new law will require the millions of subscribers who use apps like PayPal, Venmo, Square, CashApp, and other third-party electronic payment networks to report payments of $600 or more to the IRS.
The expansion of the reporting rule is the result of a provision in the American Rescue Plan, which was signed into law earlier this year. The ultimate aim of the provision is to clamp down on unreported, taxable income.
However, this new crackdown appears to target smaller businesses that were not reporting all of their business transactions; or even freelancers and contractors.
Before this change, app providers only had to send the IRS 1099-K form if an individual account had at least 200 business transactions in a year and if those transactions combined resulted in gross payments of at least $20,000.
Keep in mind if you are using the app to reimburse a friend for payment on items like food, this is not taxable – but if it is a business transaction for a service or good is collected it is considered a taxable source of payment.
The biggest change is the increased visibility the IRS will have into business income transactions, both those that have always been reported by the income recipient and those that haven't been.
Experts suggest for small businesses, contractors, or other freelancers create two separate accounts for auditing purposes and to keep track.
For more information, go to whitehouse.gov.
