The claim: Borrowed funds exceeding $600, deposited via smartphone apps, would be taxed under a new bill
A proposal from the Department of the Treasury aimed at decreasing tax avoidance has become the subject of misinformation online.
One Facebook post claims the “new tax bill” would tax transactions exceeding $600 on smartphone apps like PayPal and Venmo.
“That means if you borrow money using any of those things over $600 that money will be taxed again,” reads the Sept. 20 post, which was shared more than 1,300 times in four days. “You know who deposits $600 or more into their bank account from outside sources to help them survive? The poor and middle class.”
The Treasury proposal would change reporting requirements to account for transactions made on smartphone apps. But the claim that it would levy new taxes is wrong.
“It looks like (the proposal) is just extending to more entities the obligation to report transactions exceeding $600,” Karen Brown, a tax law professor at George Washington University, told USA TODAY in an email. “It places these bank surrogates in the same position as others. It is clearly an anti-tax avoidance measure."
Proposal doesn’t suggest new tax
The Facebook post misconstrues a Treasury proposal that suggests broadening financial reporting to "improve tax compliance."
In May, the Treasury proposed requiring financial institutions to report to the Internal Revenue Service annual inflows and outflows from most bank, loan and investment accounts. The requirement applies to accounts whose inflows and outflows, including paychecks and transactions made via smartphone apps, add up to $600. The details of individual transactions would not be reported.
The proposal is an effort to reduce the country’s annual tax gap – the difference between taxes owed and taxes paid – which the IRS estimates to be roughly $166 billion per year. It does not suggest levying a new tax.
"First off, the proposal does not change what is taxable in any way. It does not authorize Treasury to expand what is taxable at all," David Super, a tax law professor at Georgetown University, told USA TODAY in an email. "Second, the proposal does not specify what particular reporting standards would be adopted."
The claim that borrowed money would be taxed is nonsense, too. Personal loans are not considered income and cannot be taxed unless they are forgiven, according to Investopedia.
"The statement that borrowing money will be subject to taxation is false: loan proceeds have never been income and hence have never been taxable," Super said.
“It is absolutely false that poor people or anyone is taxed on borrowing funds,” Brown said. “That's the quintessential feature in our tax system. Borrowed funds are not subject to tax because of the borrower's offsetting obligation to repay.”
Joey Gates, the Facebook user who shared the claim, told USA TODAY in a Facebook message that, "regardless of whether I have a misunderstanding of the tax proposal or not, it is baffling to me that more money would be collected from tax payers while we leave billions of dollars of tax payers money (in) Afghanistan."
Our rating: False
Based on our research, we rate FALSE the claim that borrowed funds exceeding $600, deposited via smartphone apps, would be taxed under a new proposal. A Treasury proposal would require financial institutions to report annual inflows and outflows, including transactions on smartphone apps, for most bank, loan and investment accounts. But it would not create an additional tax on those funds. Personal loans are not considered income, so they cannot be taxed unless they're forgiven.
Our fact-check sources:
Department of the Treasury, May 2021, General Explanations of the Administration's Fiscal Year 2022 Revenue Proposals
Karen Brown, Sept. 24, Email interview with USA TODAY
David Super, Sept. 24, Email interview with USA TODAY
Investopedia, March 18, Are Personal Loans Considered Income?
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This article originally appeared on USA TODAY: Fact check: Treasury proposal wouldn't levy new tax on PayPal, Venmo