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EcommerceBytes-NewsFlash, Number 2624 - September 06, 2011 - ISSN 1539-5065    1 of 4

PayPal Coy about Request for Seller Social Security Numbers

By Ina Steiner
September 06, 2011

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PayPal has begun requesting that sellers supply them with their social security numbers thanks to a new 1099K reporting law. But sellers who are nowhere near the level of payments required by the law say PayPal is unnecessarily asking them for their tax ID numbers and in some cases are coercing them into providing the information. PayPal refused to tell EcommerceBytes what specific criteria trigger those requests.

The new law requires PayPal and other payment processors to report seller's gross payment volume when payments exceed both $20,000 in gross payment volume from sales of goods or services and 200 payments for goods or services in a single year.

PayPal told EcommerceBytes in December that it would ask for tax ID information only from merchants that are "potentially impacted" by IRS requirements. But when asked last week exactly what criteria PayPal used to determine when it would request a seller's tax ID number, the spokesperson would not get specific:

"We do not disclose specifics as there is a multitude of factors, but PayPal tracks the payment volume of accounts and those with the potential to meet the criteria set by the Internal Revenue Code IRC Section 6050W will be notified and required to provide their tax ID number. If sellers cross the IRS thresholds in 2011, PayPal will send Form 1099-K to them and the IRS for the 2011 tax year in early 2012."

According to an article in EcommerceBytes last year by Barbara Weltman, merchants who are required to provide their federal tax identification numbers but fail to do so would become subject to "backup withholding," which means companies such as PayPal would have to deduct and withhold income tax from reportable payments.

But PayPal is telling sellers if they don't supply Social Security number, Employer Identification Number, or Individual Tax Identification Number after it requests the information, they would face limits on their account, including:

  • You'll be unable to receive funds into your account.
  • You won't be able to close your account.

Sellers on the Etsy marketplace discussed the issue, with some reporting they felt pressured to provide the information to PayPal despite having transaction volumes significantly less than required by the IRS.

Let us know what you think and if you've been affected by posting a comment on the EcommerceBytes Blog.

About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

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