AuctionBytes Blog
Covering auctions, collectibles and marketplace selling.

AuctionBytes Blog The AuctionBytes Blog has been giving a voice to online merchants since its launch in 2005. Named one of the world's top 30 blogs in 2008 by "Blogging Heroes." Weigh in with your thoughts on the joys and pitfalls of selling online.
Mon Dec 20 2010 20:56:40

PayPal Puts IRS Rumors to Rest

By: Ina Steiner

Sponsored Link

eBay's online-payments subsidiary PayPal has already begun asking some merchants for their tax ID numbers to help them comply with a new tax law, but PayPal said it would not expand beyond the IRS reporting requirements it is obliged to follow for tax-year 2011.

Rumors have been surfacing about how a new requirement might impact small sellers who accept PayPal payments. I've been writing about this issue for since the new requirement was included in the Housing Economic Recovery Act of 2008, and some sellers are clearly still nervous about the implications of the legislation.

The law requires banks and other payment settlement companies that processes credit cards, debit cards, and electronic payments to file a new form, Form 1099-K, telling the IRS what online and offline merchants receive in payments, effective for the 2011 tax year.

For any person or entity that is selling goods or services and receiving payments through a payment processor, the money collected from sales will be reportable on Form 1099Ks - if they exceed $20,000 and 200 transactions in one year. (The "and" means that merchants who receive 1,000 transactions totaling $19,000 would not be affected - both criteria are needed to trigger the reporting requirement.)

One rumor circulating is that PayPal would issue 1099Ks for sellers with payments lower than the required thresholds. A PayPal spokesperson said this was incorrect. "PayPal will be using the IRS thresholds for reporting (merchants receiving over $20,000 in gross sales volume AND 200 payments or more)."

There has also been talk of sellers leaving eBay because of the reporting requirement, and that sites that allow sellers to advertise that they accept non-electronic forms of payment (checks, money orders and cash) may benefit from any such exodus.

Note that the law does not change sellers' existing obligation to report income. Some sellers who are in compliance and pay their taxes simply don't want to deal with more paperwork, while others may be wary of just how the IRS will use these reports.

PayPal has already begun collecting tax ID numbers - social security numbers for individuals and sole proprietors, and TIN or EINs for businesses. In response to my inquiries, a PayPal spokesperson said the following:

"PayPal has not begun reporting and will not report any payments received in 2010. Transactions occurring prior to 2011 will not be affected by this legislation. Starting in 2010, however, PayPal began asking impacted merchants to update their account by adding their SSN/TIN/EIN to their existing account(s). This information will only be requested from merchants that are potentially impacted by IRS requirements. If you are required to add this information, we will notify you via email and include an alert in your Account Overview."

Individuals and sole proprietors can obtain a Tax ID Number if they don't wish to reveal their social security number to payment processors. You can read more information on the PayPal website.

Sellers should be wary of phishing emails from scammers pretending to be from  PayPal or the IRS, or any other payments processor such as credit card merchant account services.

Comments (23) | Leave Comment | Permalink
Readers Comments

PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest

by: JEFE
Web Site

Fri Jul 29 23:54:34 2011

I don't mind giving my SS# to legitimate entities but Paypal? Ya ever look at the fake ''buyer protection'' video on their site or talked to these idiots. Meg must've cleaned out a homeless camp and is feeding them for wages and by the looks of them feeding them a lot

PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest

by: Lee

Mon Sep 26 11:01:52 2011

I have not been able to find the answer to this simple question.
I have 142 transactions this year and am over the 20k. If I stop using paypal right now, will I still have to give them my social?
They have asked for it, but I they seem to be asking a lot of people who have not met both the criteria yet. I am switching to another pay gateway.

PayPal Puts IRS Rumors to Rest   PayPal Puts IRS Rumors to Rest

by: Linus

Thu Nov 10 01:03:03 2011

Thanks for this info.  Okay.  Let me tell you my dilemma and if you can help.

I am a Canadian selling on Ebay and do a considerable amount of sales in the states.

Recently, I started publishing on the Kindle bookstore which requires me to get an ITIN so they do not withhold taxes.

I PAY my Canadian taxes on all of eBay and Kindle revenue.

If I apply for an ITIN will the IRS start wanting to tax me on my eBay sales in the USA also?

Click to view more comments
1 2 

Login is required to post comments.
To sign in to leave a comment using your AB Verify User Name, fill in the form below. If you have not yet signed up for AB Verify, or if you'd like more information, go to the Registration Page

Login for AB Verify
Be sure and use your email address and password to log in.

 Forgot Your Password?
 Even though you are signed in with the AuctionBytes Blog, you will have to sign in to the EcommerceBytes blog. But you can sign in with your existing AB Verify info.