Thanks to new legislation that took effect earlier this year, I predict that many unsuspecting small business owners are about to fall victim to yet another scam.
The scam will relate to legislation relating to new tax reporting rules that will affect millions of freelancers and small businesses. As I explained in a previous column, beginning with the 2022 tax year, if you receive more than $600 in total payments during the year from a payment service like PayPal, Venmo (which belongs to PayPal), Square, Stripe or online sales of your products made through Amazon, Etsy and other marketplaces – regardless of the number of paying customers – this payment service is required to report this amount to the IRS and to you by sending a Form 1099-K – used to report payments through these third parties – in early 2023.
You might think that’s a headache, but it’s nothing compared to the headache these payment providers are currently facing. They now have a huge new tax filing requirement. Unfortunately, these providers probably don’t have all the information they need about all the businesses they serve in order to fill out these forms correctly, and if they don’t get this information, the rules state that they are bound to retain 24% of payment and remittance to IRS. They don’t want to do that, and small businesses don’t want that to happen either. They will therefore soon contact their customers for more information. Already, they are laying the rails.
“You may notice that in the coming months we will ask for your tax information, such as a social security number or tax identification number, if you have not already provided it to us, in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure that there will be no problems when these changes take effect in 2022”, PayPal said in a press release. “This helps us meet our obligations to the IRS and ensures that you can continue to use your account and access PayPal and Venmo features and services.”
Enter the crooks.
Starting mid-year, I predict that millions of individuals and small businesses will receive requests for the payment services they used to provide or update their personal information – including their Social Security numbers and Tax ID – so these services can comply with the new 1099 rules. They will mostly come by email, although some will come by text.
Unfortunately, a scammer can also send a fake text or email – or millions of fake texts and emails – to small businesses that look genuine but surreptitiously redirect you to a fake website that not only collects your data more personal, but can also upload malware into your network to use for future attacks and mischief. These are called “phishing” scams. Have you heard of it.
Hopefully, your payment provider has already received this information from your company. And if your business is set up to receive funds from a payment service provider, chances are the payment service provider has a direct portal on their website for you to update the 1099 information of your company. Stripe, for example, offers detailed advice to do this. So do PayPal, Apple, Square and cash app.
But some people won’t. And although the IRS provides advice to avoid scams during tax season and throughout the year, the agency is unable to help a small business owner if they fall victim to someone claiming to be a tax service payment like PayPal, Venmo, Stripe, Square and all the other companies that – at least as far as I can tell – aren’t doing much right now to warn their customers about these potential scams.
So please – be careful. Take a few minutes to visit each of your payment service providers’ websites and update your 1099 information. Train your finance employees who may receive email inquiries so they know what to look for. If you are unsure of the sender, ignore the email. Report any suspicious requests directly to the payment service provider. If you submit information, be sure to do so directly on the payment provider’s website and avoid clicking on links in an email. Otherwise, you are exposing yourself to serious problems.
By the middle of the year, I predict you’ll be hearing a lot more about this scam. Start paying attention now.