The new tax policy was tucked into the stimulus package known as the American Rescue Plan, which Democrats passed in 2021. It has gone largely unnoticed because it applies to income earned this year and affects taxes that most Americans will pay in 2023. It is projected to raise about $8 billion in additional tax revenue over a decade.

But as the impact of the rule and the prospect of surprise tax bills become clear, it is drawing pushback from business groups, lawmakers and others, prompting a scramble within the Biden administration to come up with a solution to avoid another chaotic tax season next year.

Senators Joe Manchin III, Democrat of West Virginia, and Bill Hagerty, Republican of Tennessee, are expected to try to scale back the tax measure by attaching amendments to the $1.7 trillion spending package that Congress is expected to pass this week. Business groups have been urging the Treasury Department to act on its own to delay the new requirements to avoid an administrative crisis at the I.R.S., which has been faulted by an internal watchdog for woeful customer service.

Before the rule change, services like Venmo supplied users with a snapshot of their income called a 1099-K form only if they received more than $20,000 and had more than 200 transactions. The forms were supposed to be submitted with tax returns to the I.R.S. and were intended to help determine how much a taxpayer owes.

Those thresholds were lowered to $600 for the entire year, regardless of the number of transactions, significantly broadening the number of people who receive such payments and who are likely to be required to pay more taxes.

Understandable, but hyperbolic, outrage from Republicans, as Senator Rick Scott R-FL explains flatly

“The Biden administration is also changing I.R.S. standards to begin tracking every financial transaction Americans make in excess of $600, including on CashApp, Venmo and PayPal,” Mr. Scott said. “It’s an outrageous violation of Americans’ privacy. It’s stuff we see in Communist China.”

Republicans are critical of the Biden administration’s plans to empower the I.R.S. through an $80 billion overhaul. It understandably feels like, aside from the deceptive direct tax increases, that these efforts are indirect tax increases through increased enforcement. For the party who opposed what they felt were excessive spending, forced through by Democrats in the previous couple of years, these tax increases and changes to enforcement, appear as desperate collection attempts to squeeze the poor and middle class and make up for their reckless spending and buying of the public's vote.

Aside from Sen. Manchin, other Democrats are quite concerned

Democrats have also been on the defensive over the law, and some, including Senator Maggie Hassan of New Hampshire, have called for amending it. [with her proposed legislation, the "Cut Red Tape for Online Sales Act"]

The tax experts are concerned as well

“It’s all low-income people here,” said Grover Norquist, the president of Americans for Tax Reform, said. “Billionaires don’t have side gigs where they make money renting their room out.”

Allison Soares, a California tax lawyer, predicted that discrepancies on tax forms would be widespread because of the new policy and that the burden of proof would be on businesses to clear them up. “I would anticipate more audits,” Ms. Soares said.

Then the IRS themselves and the Treasury Department are on the defensive as well, ass the Senate Finance Committee tries to mop up the yet another poorly though Democrat legislation caused mess

Julia Krieger, a department spokeswoman, said that “Treasury and the I.R.S. are laser-focused on quickly identifying a solution to address any challenges taxpayers may face this filing season.”

Senator Ron Wyden of Oregon, the Democratic chairman of the Senate Finance Committee, told Treasury Secretary Janet L. Yellen this week that the I.R.S. must improve its communication with taxpayers over the new requirements and more clearly explain what kinds of transactions would be taxable.

The I.R.S. issued a warning this month to taxpayers who will be facing the new requirements for the first time.

The uncertainty surrounding the tax reporting change could strain the I.R.S. while it has been working to clear a backlog of millions of old tax returns and is in the midst of a leadership transition ahead of the confirmation of a new commissioner.