|Mon Sept 5 2011 21:29:12|
Is PayPal Pressuring Sellers to Provide Social Security Numbers?
By: Ina Steiner
|PayPal has begun requesting social security numbers and tax ID numbers from sellers thanks to a new 1099K reporting law. But sellers who are nowhere near the level of payments required by the new law report PayPal is unnecessarily asking them for their tax ID numbers and, some are feeling coerced into providing the information, as we report in tomorrow's EcommerceBytes newsletter.|
One EcommerceBytes reader wrote, "I can't find info on here regarding the PayPal policy of requiring either your seller tax ID or SSN in order to continue on using their service for sales or they will suspend your account. Do you have any info on this? According to PayPal you have to meet both of two criteria before they have to report to the IRS. I meet neither of those criteria, much less both, so why suspend me when they don't even have to report me to the IRS?"
PayPal would not provide EcommerceBytes with specific information about what would trigger PayPal to request a tax ID number, stating there were a "multitude of factors."
According to the new requirements, merchants who are required to but don't provide their federal tax identification numbers would become subject to "backup withholding." But on its website, PayPal states that sellers who don't supply Social Security number, Employer Identification Number, or Individual Tax Identification Number after PayPal requests it could face limits on their accounts.
Compounding the issue is that many sellers conduct transactions on PayPal for multiple businesses, on a consignment basis, or for friends. The reader referenced above said she sells for family and friends and said only half of the volume transaction that flows through her PayPal account belongs to her business.
Another reader said she has a PayPal account set up in her business name with a federal tax ID number, and also has a personal PayPal account used to make personal purchases for herself and to sell personal items not related to the business.
She wrote that on one occasion, she listed and sold a vehicle for her husband on eBay and the payment was made via Paypal. "I just spoke to PayPal and they said that since I have 2 accounts, all income/payments will be lumped together, from the 2 accounts, and reported to the IRS since I am over $20k."
Many users are also skeptical about providing sites like PayPal with social security numbers due to fear of spoofs, scams and hacking. If you do receive an email from PayPal requesting this information, don't click on the links in the email. Rather, open a browser window and log in to PayPal as you normally would, and check your account for messages from PayPal.
And one more warning to sellers - if you conduct activity through any payment processor this year, you should remember to look for possible 1099K forms early next year. PayPal said it would not be mailing them to sellers in paper form. Sellers must proactively request paper copies, otherwise, PayPal will send the 1099Ks electronically - according to the PayPal user agreement, it's your responsibility to make sure you receive it.
If you've been impacted by the new reporting requirements, let us know.
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