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Julia Wilkinson AuctionBytes Blog
Covering auctions, collectibles and marketplace selling.

Julia Wilkinson is Editor of the AuctionBytes Blog and is author of the "eBay Price Guide," "eBay Top 100 Simplified Tips and Tricks," "My Life at AOL" and numerous ebooks about selling online. You can also find her writing on Yard Salers.
Wed Sept 8 2010 21:51:17

PayPal Readies for IRS 1099-K Reporting Requirements

By: Ina Steiner
Sponsored Link
PayPal is preparing for new IRS reporting requirements, and online sellers should prepare as well! PayPal is modifying its User Agreement to make sure users acknowledge that PayPal will begin reporting payments received into accounts of those users who receive more than $20,000 and more than 200 payments (yes, it is AND - I get that question a lot). PayPal and other payment services and credit card merchant account providers will have to report payments made in 2011 on Form 1099-K to the IRS.



If you are a business (even a sole proprietorship), you should seriously think about getting an EIN - Employer Identification Number - to spare yourself from having to give out your social security number where possible.

It seems likely that payment services and credit card merchant account providers will be collecting that information so they can complete the 1099-K, but whether they will wait to collect it only for those they know will reach that requirement, or will collect it for all customers is anyone's guess at this point.

Individuals who sell casually online should probably not get an EIN, since once you declare yourself a business, there may be other ramifications. If in doubt, consult an accountant or wait until more is known about the kind of information companies will start collecting.

The IRS accepted public comments and has now made its final rule - it will stick to requiring that the "gross amount" be reported. The proposed regulations defined gross amount as the total dollar amount of aggregate reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.

The final rule states, "Several commenters suggested defining "gross amount" as net sales, taking into account credit transactions, chargebacks and other adjustments, on the ground that gross amount is not a true indicator of revenue." Nevertheless, the IRS will require payment services to report the gross amount.

More about EINs (link)

Information Reporting for Payments Made in Settlement of Payment Card and Third Party Network Transactions - Final Rule (link)

IRS Third Party Reporting Information Center (link)

AuctionBytes article on reporting requirements (link)





Comments (51) | Permalink
Readers Comments

PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Doris Knight
       
Wed Sep 8 22:37:34 2010
It's still confusing. That ''and'' needs a little more clarification.

''$20,000 AND 200'' transactions could mean:

Two Groups of Sellers: Everyone who had $20,000 in receipts *AND* everyone who had 200 or more transactions.

or

One Group of Sellers Who Meet BOTH criteria: Everyone who had $20,000 in receipts AND who also had 200 or more transactions.

I'm guessing it's the first, but when has PayPal (or the IRS for that matter) ever come up with any rules/policies/regulations that were clearly worded and easy to understand??

PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: ma
       
Wed Sep 8 22:56:50 2010
Alas some fairness.. I have been reporting my sales for the entire 10 years that I have sold on ebay.. income is income.. I do have a business license and I file as an sp and deduct my my expenses. I know that when honest you have nothing to fear from the IRS.. I feel much better knowing that others will be required to report.. I wish they had just used the 20,000 and not the 200 but I dont have a problem myself since I report.
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Serial Comma
       
Wed Sep 8 22:57:06 2010
@ Doris Knight
''$20,000 AND 200'' transactions could mean:

Two Groups of Sellers: Everyone who had $20,000 in receipts *AND* everyone who had 200 or more transactions.

or

One Group of Sellers Who Meet BOTH criteria: Everyone who had $20,000 in receipts AND who also had 200 or more transactions.


Indeed.

Receive more than $20,000, and more than 200 payments, or ''receive more than $20,000 and more than 200 payments''?


John Comeaux
7/21/2007 10:22:15 PM
You should always use a serial comma in legal documents. Imagine that your estate is willed to split equally between Tom, Dick and Harry. So, Tom gets 50% and Dick and Harry split 50%. That has actual legal precedence. -----
Serial Comma grammar.quickanddirtytips.com/serial-comma.aspx
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Howie Cramawitz
       
Wed Sep 8 23:49:12 2010
I report my Ebay gross. This is a sickening deal. The 1099 for everything is worse.
Flea markets are looking much better after years of staying away.  
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Jake
       
Thu Sep 9 02:11:13 2010
I believe this will be enough for many US based on-line sellers to walk away, with all the hoop jumping that both eBay and Paypal require from sellers this will just destroy any profit left and open any seller to full investigation by the IRS for previous years sales.

I fully understand income should be disclosed but lets talk straight with the US in such dire straights how many do disclose on-line revenue or would even dream of doing so to the IRS…next they will be asking pimps and dealers to fill out a 1099
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Big Brother
       
Thu Sep 9 06:09:20 2010
''And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.''

The people who use eBay are basically good. Do you really think someone would mess with your identity?
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
This user has validated their user name. by: Nan
       Web Site
Thu Sep 9 08:59:44 2010
So, if I complete 200 transactions for $5.00 each, they are going to 1099K me?

Not a problem, since I do report my earnings, but I am curious if I have to wait for another form to come in the mail before I do taxes.

Who wants to bet PP waits until the last possible minute (end February) to mail them out.
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: unknown This user has validated their user name.
       
Thu Sep 9 09:11:48 2010
@ Serial Comma

The way the government words it in  at least one of the relevant pdfs Ina noted:  

more than 200 transactions aggregating more than $20,000 per year for a given payee
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: itallchangesnow
       
Thu Sep 9 09:58:33 2010
The IRS will definitely want to know if a seller has collected $20,000 or more regardless of the # of transactions so I would think that the dollar amount will trump the # of transactions.

Google Checkout and other 3rd party checkouts will be required to do the same, not just PayPal.

It's all going to change online now since the IRS will be involved. It will most likely take a year or two for the ramifications to be felt by the sellers who have never reported their income.  

Just wait for the horror stories to be told in the chat rooms! ''I had to pay more taxes and couldn't keep all of the $50K that I made online last year'' and ''My online income bumped me into a higher tax bracket and I didn't get a refund this year!'' It's here folks and it's all changing now.  Except for our overseas competition of course...
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: jw
       
Thu Sep 9 10:13:08 2010
Does this mean that year 2011 will be the first year which earnings will be reported in 2012, or does it mean that they will report 2010 earnings next year?
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Rick28
       
Thu Sep 9 11:15:30 2010
Just to let USA-based users know, Canada's revenue department has already implemented such actions on eBay,inc.

Starting last year, eBay Canada, not PayPal (yet?), has to disclose the same info about sales made by Canadian-based sellers.

eBay tried to fight it in court but lost and is obliged to provide the info.

eBay says that affected Canadian sellers would/will be notified if they have forworded the transaction info to Revenue Canada.

I just saw PayPal's UA for Canadian based users (again, no email notification about changes to the UA) is implementing a clause about supplying info to a third party and releasing them from any liability that may result. Is this a precusor to PayPal having to give info to Revenue Canada or not?

I have to assume that other countries have this in place or will soon follow with some such requirements from online selling/payment processing entities.

People must undestand that doing business online, especially ones entire business operation, is still in its infancy, when it comes to legal, government or other issues.

15 years, and really just the last ten, is a very short time to try and put in place where all responsibilties lie between all parties in an online business venture.

Companies, like eBay,inc, believe that they can play around with their site and have no liability.

They have non-stop changes additions to their UA's or policies. Pretty much most of them are trying to protect them from liability, not helping the users paying to use their services.

I see many people posting that, as it is eBay's site, they can do whatever they want to do and whenever thay want to do it, so live with it.

Company's like eBay,inc. truly hope that the vast majority of their users believe in that mantra.

I believe that is not the case. And I also believe that I am not the only one with this opinion.

These companies are accountable for their bad faith actions (not taking about giving revenue info, they are obliged to do so).

Time will tell on how this will shake out.
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Patricia This user has validated their user name.
       
Thu Sep 9 11:35:57 2010
No fear here.  I make a whale of a lot LESS then 20,000 a year on my sales and still report every dime.  I don't want any trouble from those guys.
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Rich
       
Thu Sep 9 13:44:10 2010
This isn't very clear. Can someone clear this up?  When does this begin?  Are the 1099's going out in January 2011 for the 2010 year of sales or does this begin with next years sales and the 1099's will first begin to be sent out in January 2012.  I report all my income and get my numbers from adding up sales reports, but a 1099 would actually be much easier; although the shipping should not be included. Also it makes no sense a person can do over $20,000 but less than 200 transactions and not get a 1099?  Is this right?  A person can sell 20 cars for $100,000 and not get a 1099 while someone else can sell 2,000 cd's for $10 a piece and get a 1099?
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: Hardrock Rules
       
Thu Sep 9 14:03:12 2010
This is no big deal, as a seller I ALWAYS report my Gross Sales & payments and to all you sellers that don't. you weren't doing it right if you were not. Income is income, eBay is not a hobby for anyone making more then $400 a year

I am glad, about this, because maybe more competitors will quit eBay
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: jw
       
Thu Sep 9 15:33:05 2010
I talked with an account who was under the impression that 2011 tax year will be the first one to be reported in the beginning of 2012. I am under the impression that it is 200 ELECTRONIC transactions, not SALES, that will define who gets 1099-k. Keep in mind that each sale produces not just a payment but also paypal fees, refunds, reversed fees, shipping labels fees, etc. Each sale can produce easily 4-6 transactions as it is.

I know several people who sell on ebay hundreds of thousands a year, and have not reported a dime. During years they have collected state assistance, food stamps, etc. because they have no income, a disability or small children. Now they are facing not only tax evation but also state fraud if they get audited 7 years back.  

We have paid our taxes but it is just going to create enormous amount of work to disect the gross amount reported by Paypal.
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: katy
       
Thu Sep 9 16:35:45 2010
i hope someone will clarify this soon - is it both 20,000 and over 200 payments. If you have over 200 transactions, but don't sell near 20,000 will you still get a 1099?
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
This user has validated their user name. by: Ina
       
Thu Sep 9 16:53:39 2010
If you have 300 payments but don't reach $20,000, PayPal will not be required to send you a 1099K, if you have two $20,000 transactions, PayPal will not be required to send you a 1099K.

That said, you still have to report the income.

The 1099s are informational so the IRS can look for patterns of underreporting (or nonreporting) of income, so this may result in more audits.

PayPal and other payment services will send out 1099s for tax year 2011 in early 2012.

Hope that helps.
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: What about this ?
       
Thu Sep 9 17:27:11 2010
Ok, so I estimate maybe 1000 payments, and $60,000 in Gross Payments/Sales

Will I get a 1099 ? Remember, Gross payments are not Gross profits after cost of items sold, fee's, Shipping expenses, this is the Gross correct ?
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: unknown This user has validated their user name.
       
Thu Sep 9 18:18:50 2010
Gross payments, not gross profits and not net payments.
PayPal Readies for IRS 1099-K Reporting Requirements   PayPal Readies for IRS 1099-K Reporting Requirements
by: What about this ?
       
Thu Sep 9 20:46:01 2010
Example

Seller sells item for $65 includes free s/h/i

Item cost seller $35

Shipping cost $6

eBay fee's cost $6.85

Pay Pal fee $1.90

Gross NET profit = $15.25

BUT PAY PAL will report the $65 as 1 payment and $65

That is why sellers must save their expenses for deductions, we only get taxed on our profit, not our gross which the 1099K reports to IRS

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