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Biden Administration Backs Off on Proposed Bank Transaction Threshold

Article Highlights:
  • Tax Compliance 
  • Hard-to-Trace Income Sources 
  • Two-Tiered Compliance 
  • Bank Transaction Reporting Threshold 
Tax-compliance rates in the United States are based, in large part, on how taxpayers accrue income. Those who receive income that is reported by a third-party source, such as wage earners, exhibit near-perfect compliance rates on their salaries – since the payer of the income also reports that income as a deduction, such as the employer deducting wages as a business expense and reporting the wages on a W-2, a copy of which goes to the IRS.

By contrast, taxpayers who accrue income in hard-to-trace ways exhibit much lower rates of compliance, as no third-party source reports the income to tax authorities. Instead, some of these taxpayers take advantage of the fact that certain income streams are hidden from the IRS, with no information that the IRS can use to detect noncompliance.

Higher-income taxpayers disproportionately accrue less-visible income streams. This tax-compliance divergence means that low- and middle-income taxpayers have higher compliance rates, while upper-income taxpayers likely have higher evasion rates. The Department of the Treasury estimates that the cost of tax evasion among the top 1 percent of taxpayers exceeds $160 billion a year.

The Biden administration’s efforts to ferret out taxpayers who are not reporting all of their income – and thus are escaping taxation – originally included the idea to require all financial institutions – including banks, Wall Street brokerage firms, credit unions, and private lenders – to report consumers’ account transactions totaling $600 or more annually. This would be done by including two new boxes on the applicable annual 1099 form: one would report deposits into the account, and the other would report the withdrawals.

This created a firestorm of opposition from the financial institutions whose job it would be to report consumers’ transactions, which claimed this would be an added burden and expose both consumers and businesses to possible data breaches and privacy intrusions. 

On the other hand, supporters argue that the financial institutions’ customers would not be exposed to any new privacy issues or obligations, yet the institutions would be providing the IRS with more information to track down tax cheats and help close the tax gap by an estimated $600 billion annually.     

On October 19, 2021, in the face of widespread opposition, the Biden administration has backed down and is now proposing raising the reporting threshold to $10,000 in annual transactions while exempting income from which federal taxes are automatically deducted, as well as federal benefits like unemployment and Social Security.

Keep in mind that this reporting requirement is part of the proposed $3.2 trillion package (Build Back Better Act) being negotiated in Congress, and there is no assurance it will be included in the final bill. However, if it is, it would not be effective until December 2022.

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Offices in Flemington, NJ and Califon, NJ

Our Mission: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we are on a mission to redefine the tax experience for individuals and small businesses. With a focus on personalized service, strategic planning, and expert guidance, we aim to empower our clients to succeed financially with confidence and ease.

Expertise in Action: With a wealth of experience and a team of dedicated professionals, we specialize in individual and small business tax preparation. While we excel in all areas of taxation, our passion lies in serving the unique needs of small business owners in New Jersey. We understand that small business taxation requires specialized knowledge and attention to detail, which is why we go above and beyond to ensure our clients receive the guidance and support they deserve.

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Why Choose Us?: What sets us apart from other New Jersey tax firms is our commitment to excellence and innovation in the field of taxation. We don't just prepare tax returns; we provide strategic insights, proactive planning, and actionable advice to help our clients achieve their financial goals. With a team of two CPAs, an EA, and an ERO, we have the expertise and resources to deliver exceptional service and results.

Your Success is Our Priority: At Prestige Accounting Services Group (previously Prestige Wealth Accounting Group), we measure our success by the success of our clients. We are dedicated to building long-lasting relationships, providing unparalleled service, and helping our clients thrive in today's ever-changing tax landscape.

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