(Temporary) victory! The IRS has paused its intrusive demand that all payments amounting to $600 be reported to the government.
Payments totaling $600 will soon be required to be reported to the government, but the Internal Revenue Service (IRS) has announced that the reporting obligation will be delayed for one year. Although the rule isn't quite as intrusive as when Congress considered implementing surveillance on bank accounts with $600 in annual activity, it's close.
Acting IRS Commissioner Doug O'Donnell stated, "The IRS and Treasury heard a number of concerns regarding the implementation schedule for these reforms under the American Recovery and Reinvestment Act... The additional time will eliminate uncertainty during the approaching tax filing season of 2023 and provide taxpayers more time to prepare for and comprehend the new reporting obligations."
The stated reason may be technical confusion, but the underlying issue is how intrusive this requirement is. Previously, the legislation mandated reporting (through form 1099-K) only if a person received more than 200 transactions totaling more than $20,000 or more. Now, as a result of the American Rescue Plan Act of 2021, a single $600 payment or any combination of payments totaling $600 in a year (for example, 10 $60 payments) will trigger the same criteria.
As a matter of fact, the confusion has centered on the constitutionality of this type of surveillance. Many have wondered, "Why don't Americans have stronger financial privacy protections?"
Over the past fifty years, legislation, regulations, Supreme Court judgments, and even inflation have steadily eroded financial privacy. As I argued in a recent study, even a law labeled the "Right to Financial Privacy Act" failed to offer the level of privacy Americans should have, specifically the level the majority of Americans believed the Constitution guaranteed.
Americans may have a year to unwind, but Congress should use this time to resolve the problem. In addition to repealing the reporting requirement to reduce the burden on Americans, more basic reforms should be undertaken to establish the financial privacy protections that Americans should have had from the start.