In what seemed like a routine email titled, “View updates to your PayPal account,” PayPal informed an online seller he had passed the threshold for reporting payments to the IRS, notifying him that according to its records, he had received $600+ in goods and services payments this year “which the IRS considers taxable income.”
While the rules are new for tax-year 2022, by now they shouldn’t come as a surprise to readers. However, the email notification led to the realization of a problem the seller didn’t know he had, one that some other sellers may also face:
“My first 1099K from PayPal will cause me a huge problem since I have been receiving income from 2 businesses thru my PayPal account. I will need 2 1099K forms and I don’t know how to get PayPal to do that. Any ideas from you and your readers?”
The seller was also under the impression that payment processors were required to generate a 1099K only when a seller reached the $600 threshold and also made make at least 200 sales transactions during the year. However, that’s not the case – someone could sell a single item for $601, and the payment processor would have to issue a 1099-K.
The IRS explains on its website that processors will send Form 1099-K to those who received payments for returns for calendar years after 2021 when the following applies:
- Gross payments for goods or services that exceed $600, AND
- Any number of transactions
Here’s the text of the email PayPal sent the seller:
Updates to your PayPal Account
Hi (name redacted),
We want to make you aware of recent changes that are relevant for your PayPal account. Your updates are summarized below.
Capability & Feature Updates
- Automatic Transfers: You can now schedule automatic transfers from your PayPal balance to a bank account on a daily, weekly, bi-weekly or monthly basis. Choose to keep a pre-determined amount in your PayPal balance to use for refunds, purchases, or other business needs. Log in to your PayPal account to enable auto transfer.
- You’ve received $600+ in goods and services payments this year which the IRS considers taxable income. PayPal will make it easy for you by tracking your commercial income and sending you a 1099-K early next year. PayPal supports businesses by including Purchase Protection on eligible purchases, providing tools and reporting to help businesses run smoothly, and more. Learn more.
Our ongoing focus is to help your business thrive. For additional resources, check out the links below.
Thanks for being a valued customer,
The PayPal Team
What do you do if you’ve been collecting payments under a single PayPal account but for two different business entities? (The same applies to any payment processor that is forced to issue a 1099-K on your behalf.) Share your thoughts below.