The controversial proposal by the Biden administration to grant the IRS the power to track bank accounts with more than $600 in annual transactions is now being revisited, following pushback by Republicans and banking lobbyists who called the move an invasion of privacy by the federal government.
A new proposal by Senate Democrats and the White House would boost the IRS tracking threshold to $10,000 in annual transactions. Paycheck income with federal income withheld would not be subject to the tracking and reporting standards. Unemployment and Social Security would also be exempt, according to a Treasury Department report. Any bank account with over $10,000 in non-payroll deposits and withdrawals would be reported to the IRS, but the information about each individual transaction would be kept private.
“… taxpayers who accrue income in hard-to-trace ways exhibit much lower rates of compliance, as there is no third-party source that reports income to tax authorities. Instead, 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,” according to the report.
The changes would exempt millions of Americans from the reporting requirement and would help the IRS target wealthier Americans, especially those who earn money from investments, real estate, and other transactions that are more difficult for the IRS to track.
Treasury Secretary Janet Yellen said in a statement that the proposal is intended to collect more taxes from people who exploit the system due to a discrepancy in the way different types of income are reported to the IRS.
“… opaque income sources frequently avoid scrutiny, while wages and federal benefits are typically subject to nearly full compliance. This two-tiered tax system is unfair and deprives the country of resources to fund core priorities,” Yellen said. She added that the new proposal is a reflection of the Biden administration’s “strong belief” that it’s critical to target higher earners that “don’t pay the taxes they owe.”