The Biden administration on Tuesday backed down on a controversial proposal to direct the IRS to collect additional data on every bank account that sees more than $600 in annual transactions, after widespread criticism from Republican lawmakers and banking industry representatives, who said the tax enforcement strategy represented a breach of privacy by the federal government.
Instead, the administration and Senate Democrats are proposing to raise the threshold to accounts with more than $10,000 in annual transactions, and any income received through a paycheck from which federal taxes are automatically deducted will not be subject to the reporting. Recipients of federal benefits like unemployment and Social Security would also be exempt.
The IRS would collect the total sum of deposits and withdrawals from bank accounts with more than $10,000 in non-payroll income. Information on individual transactions would not be collected.
The changes were announced Tuesday by the Treasury Department.
"In response to considerations about scope, it [Congress] has crafted a new approach to include an exemption for wage and salary earners and federal program beneficiaries. Under this revised approach, such earners can be completely carved out of the reporting structure. This is a well-reasoned modification: for American workers and retirees, the IRS already has information on wage and salary income and the federal benefits they receive," a Treasury Department fact sheet on the changes said.
The changes would exempt millions of Americans from the reporting requirement, and 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.
"Under the current system, American workers pay virtually all their tax bills while many top earners avoid paying billions in the taxes they owe by exploiting the system. At the core of the problem i...