|Wed Sept 8 2010 21:51:17|
PayPal Readies for IRS 1099-K Reporting Requirements
By: Ina Steiner
|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)
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