Do you use Paypal to accept funds? Do you live in the United States or otherwise have to pay taxes to the U.S. government? Then you should be aware of upcoming changes for Paypal and other payment processors resulting from the 2008 law IRS 6050W. In short, Paypal and those other processors might start tracking and reporting your income to the Internal Revenue Service (IRS).
Not every Paypal user will be affected, and the first reports to the IRS will happen in early 2012 (covering your 2011 income). Here’s some background on the 2008 law leading to these changes and what they might mean for you and your business.
Paypal will report your earnings to the IRS if you meet both of the following requirements:
This would affect any users in the U.S. or those with businesses registered in the U.S. It would also include those living overseas if they’re still U.S. citizens and required to report their earnings.
What if you have multiple Paypal accounts and they meet the requirements when combined, but not when counted separately? Paypal will still report your income to the IRS. So don’t think that using multiple accounts will get you around the reporting requirements.
If you are a citizen of another country and have absolutely no ties to the U.S. tax system, you shouldn’t be affected by the reporting change.
Also, if you only meet one of the two requirements listed above, you will not be affected.
The 1099 form series from the IRS is used to report income earned as an independent contractor or in other miscellaneous non-wage ways. Paypal will use 1099 forms to report income received through their system if you meet the requirements.
Start by reviewing the current year’s transactions to see if you meet the requirements. If you do, you’ll be asked to submit your identification number to Paypal for reporting purposes — your social security number (SSN), employer identification number (EIN), or taxpayer identification number (TIN).
Don’t assume you can get around the reporting requirements by switching to a different payment processor. The law doesn’t only apply to Paypal. Any payment processor you use will be required to report your earnings if you meet the requirements.
If you use a personal or premiere account with Paypal, you might also be required to upgrade to a business account if you meet the requirements. The account change is free.
If you don’t give Paypal the requested identification number, your Paypal account might be limited until you do. If you use other payment processors, check with them to find out how long you have to comply and what will happen if you don’t.
I’ll be affected by this change, and there are a couple of issues that come to mind — ones I haven’t seen adequately addressed elsewhere. Here’s some background so you’re aware of them as well.
Find out today if the new rules might apply to you. Visit Paypal’s reports page (like the one below — my personal earnings information was blocked out) and review your monthly sales reports. There you can find out how much you’re earning in 2010, and how many sales transactions you process each month.
In the end, you were always required to report your income, 1099 or not. So it shouldn’t affect you too greatly. But if you’re concerned about the potential reporting issues mentioned above, it’s strongly suggested that you speak to a financial services, legal, or tax professional for more personal advice.
If you’d like a preview of the new 1099 form that will be used, you can visit the IRS website to view a draft of the 1099-k.
Disclaimer: Information in this article is for educational purposes only, and neither the author nor the website’s owner may be held responsible for any real or perceived damage caused by, or allegedly caused by, the information contained in this article. The author is not engaged in offering legal, financial, or other professional services or advice. If further information or more individual information is needed, it is suggested that the reader consult with a qualified tax professional.
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I am now having a situation. Currently I am selling things on eBay with the PayPal account that I've made when I was an exchange student 10 years ago. I am from Japan, not a citizen of the US as well, and I don't stay in the US anymore.
Last year on my eBay, my sale was over $20,000 and I just received from the IRS that I have to pay taxes, and needed to provide tax ID number (Social Security Number (SSN), Employer Identification Number (EIN), or Individual Tax Identification Number (ITIN) to them.
Unfortunately, I don't know or don't have any of them above. What should I do now? Now they send the letter to my old apartment in the US where I don't live there anymore. Pleae help..
You shouldn't have been operating a business using an incorrect U.S. address then. It sounds like you'll need to take your issues to a qualified tax lawyer in your current country to figure it out. You'll also need to take it up with Paypal / eBay, since you were using a false address with them last year.
hi
we sell on ebay- we buy from Amazon or walmart and resell on ebay- we buy item for 25 and sell them for 28- we only make afew dollars and some times we lose money after we pay all the fees- but we did sell 105.000 last year-is that considered income even though we buy item with that-
Yes. Of course it's income. Your expenses are irrelevant. That only matters when calculating profit (income / revenue minus expenses).
The new year end summary feature paypal now has only shows 2011. Does anyone have a link/article that shows the best way to get the essentials #'s for 2010? I just want to be in the clear in the event the IRS are going back to 2010.
I pulled the 2010 "history" report for the entire year but between the pmts received / refunds / cancelled fees/ charge back reimbursement etc (many more) - how would one collect this information accurately? This is an extremly difficult document to understand - no wonder so many people gave up on ebay book keeping. Kudo's to paypal for the changes in viewable records for 2011 but anything available for 2010? and does anyone know if they will audit 2010?
I have a question and would like to know if anyone can help me
I registered my paypal account in the US when I was studying in Boston a while back and still continue to keep that account since I moved back to hong kong. I am not a US citizen , do have a ssn, but haven't lived in the US since 2010. but this year actually i got the tax form 1099k from paypal. What am I supposed to do? I kept the paypal account because I have US bank account. Now I am confuse what I am suppose to do. I don't even how to file tax or if I need to pay tax to the IRS.
I received a PayPal 1099-K for an account I opened (Premier) for a motorcycle club I belong to. The 1099-K form shows my name as the as the PAYEE but the It has the Club EIN number in the PAYEE'S TAX ID section. Do I report this on my income tax return / SSN or does the club file a separate return for the 1099-K amounts? Or should I get PayPal to change the PAYEE Name to the Motorcycle Club Name?
My accountant had asked if I received a 1099 from PayPay and I did not. I met one of the requirements above (income) but not both for my consulting practice. To me this is another evidence that PayPay falls shorts as a merchant service. I upgraded to a true merchant service provider, and they actually send a detailed 1099 regardless of what you spend. I was paying a monthly fee to PayPal to serve as a merchant provider and collect money from businesses, so they really should have provided one in my case I believe. It's not a problem, because we track income and paid the same taxes, although I did realize that I need to have a separate PayPal account for personal sales so they don't get categorized as income (I had sold our old Droids which could have been counted as income.)
Is the 20,000/200 threshold for each payment processor or is it for all payment processors. I would venture to guess it is for each payment processor because Google checkout would not have records for Paypal transactions and vice versa. Unless a merger would happen or if one payment processor was actually owned by another payment processor their would be no way for them to dig up another companies records. I hope this answers the many people on here who asked this question. If you Jennifer Mattern know the answer could you please post it? And Jennifer, to respond to your assertion that giving that information somehow makes you an accomplice in tax fraud is just hooey! Information is just that information, it is up to the recipient to decide how to use that information. No one is asking you how to skirt paying taxes, we are just asking if the reporting is done based on a 20,000/200 threshold at each company or at all companies combined.
1) Yes, it's for each payment processor.
2) Yes, that's exactly what the previous commenter was asking about. They didn't simply ask what you did. They blatantly asked for a "workaround" that would get them out of having their income reported. And I didn't say anything about being an "accomplice in tax fraud." Do not put words in my mouth. Whether or not I would be legally liable is irrelevant. I won't betray my own ethical standards by helping someone get around the law, which is exactly what they asked about -- whether or not splitting payments would enable them to do that.
Does the IRS use computers to check that individuals are reporting their 1099-K deposits against the info they received from paymt processors? What happens if the 1099-K deposits are inadvertently unreported?
That will probably vary depending on the individual. Their system would likely reflect that they received a 1099 for you, based on the TIN you provide on your tax return (your SSN or EIN). But I can't be sure if the computer system automatically flags it if you report much less than your 1099 shows and you automatically get a letter about it, or if a red flag in the system triggers a manual review so a person can look more closely. If they couldn't check, they would require the 1099-K though. That's the point of them -- to make sure people are reporting that kind of income. Remember, the payment processors send the 1099-K directly to the IRS, so they'll know what was reported whether or not you include it on your return.
Hi, if I only sold 4 items on ebay, and had all of my money transactions through Paypal which totals my profit to 20 dollars, do I still have to claim this as income? All four transactions took place December (2011), January and February (2012) and I also haven't withdrawn any of the money yet to my bank account. I know your article said that it has to meet the two requirements of 200 transactions and over 20000 in profit, and on my PayPal account it shows that there are no tax documents for my account, but I wanted to make sure I'm not breaking the rules! Thanks.
First, you should realize that "no tax documents" from Paypal has nothing to do with whether or not you have to declare your income on your taxes (nor does withdrawing it to a bank account). You need to do that whether you meet those requirements or not. If it's taxable income, it's supposed to be reported, no matter how small the amount. That's true even if you didn't earn enough that the client or payment processor is required to file form 1099 to report the income for you. You should have your own records.
If this is the only self employment / miscellaneous income you have, you wouldn't have to pay self employment tax on it because it's less than $400 for 2011. But it would still be counted toward your overall income for income tax purposes.
i am US citizen i have ssn, i am from peru .i live in Peru i have a bussines here, i pay taxes here,
why US want to doble charge me ?
becouse my client pay me. using Pay Pal service?
i have absolutely no ties to US tax sistem!!
please help me
thank in advance
Margarita
The only people who can help you with your personal situation are tax professionals. You should consult with one. In general, you shouldn't be double-taxed. But you'll need a tax professional to help you determine the tax agreements the US might have with the country you're living in. That will determine how much you're taxed in total and how much gets paid to each country (if you end up owing there or not).