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Thu June 23 2022 22:03:12

PayPal Closes Loophole on Fee Avoidance

By: Ina Steiner

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PayPal is closing a loophole that allowed sellers to avoid fees as well as avoid income-tax reporting. As of the end of July, business accounts will not be able to receive "personal transactions," which is known as Friends & Family in PayPal lingo. 

It had always been against PayPal's policy to send a payment using the "sending to a friend" option if it was really for the intention of "paying for an item or service." And there were lots of reasons for buyers not to do so, with articles and blog posts (and PayPal itself) warning buyers their purchases would not be protected if sent via Friends & Family. 

But some sellers encourage the practice, since recipients of payments sent via Friends & Family pay no fees. 

Another reason why some sellers might prefer buyers to send payments via Friends & Family instead of via Goods & Services: PayPal does not report such payments to the IRS on form 1099K.

This week, PayPal also revealed it will make a fee change that could result in sellers paying higher fees for certain transactions. Pymnts.com summarized the fee change as follows: "PayPal also revealed it will streamlining the Goods and Services seller fee to 2.99%, with no fixed fee, for customers in the U.S. PayPal's current Goods and Services fee is 2.89% + $0.49 USD."

The changes are part of PayPal's amended User Agreement that goes into effect at the end of July, found on this page of the PayPal website:

Amendments to the PayPal User Agreement and the PayPal Balance Terms and Conditions
Effective July 28, 2022:

- U.S. business accounts will not be able to receive personal transactions from U.S. PayPal accounts.
- U.S. PayPal accounts will not be able to send personal transactions to U.S. business accounts.
- The rate for the "Send/Receive Money for Goods and Services" payment type will be 2.99% (with no fixed fee). This pricing change will result in fee increases for some transactions. You can preview the Merchant Fees page that will be effective on July 28, 2022, following such changes.




Let us know if this will this impact you and if there are other implications of the forthcoming changes to PayPal's User Agreement.

Comments (24) | Leave Comment | Permalink
Readers Comments

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

This user has validated their user name. by: Bill

Fri Jun 24 00:13:12 2022

Well it looks like they are raising the fees for out of country transactions also.The only transactions that would be affected in the US will be for over $500.00

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: Old School Seller This user has validated their user name.

Fri Jun 24 07:28:56 2022

This rule change doesn't go far enough.  Unscrupulous sellers don't sign up for ''business'' accounts through payment apps so unfortunately, the ''loophole'' will still exist.

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

This user has validated their user name. by: The End

Fri Jun 24 19:19:45 2022

My heart leaped with happiness on the first 2 words :
"PayPal Closes....."
Just have to wait a little more......

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: railady This user has validated their user name.

Sat Jun 25 11:36:10 2022

Honestly, I don't blame PP for ending the F&F - I have wondered all along how long they would allow it and have done my best to not violate rules. This is just like anything else - dishonest users spoil a very nice perk for the honest users. As has been said earlier, the dishonest will just use personal accounts.    

When the venue I sell on (since 2000, and I've been using PP for longer than that) began collecting sales tax they required me to change from a personal account to a business account, to continue offering customers the option to use PayPal.  Everything went smoothly then, and my PP account has been problem free not only since then, but for YEARS before that.  

NOW - out of the blue - PP has slapped HOLDS on two of my sales - claiming a ''sudden'' increase in my account - except nothing ''sudden'' has been happening!!!  Sales are down (I didn't sell on eBay mid-May - mid-June because that's been a bad time for me in the past) income piddling in, but no LARGE differences. Also, compared with others I am nickel and diming it. The vast majority of my sales are two figures.

I have NO CLUE what is going on.  I was able to eliminate one of the holds by sending PayPal the UPS tracking (''delivered''). The other hold (for a measly $90 sale) is still in effect because I haven't shipped the item yet. I am wondering if PP is doing like eBay and trying to somehow accumulate funds to claim profits or income?    

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

This user has validated their user name. by: iheartjacksparrow

Sat Jun 25 11:42:35 2022

@Old School Seller - What PayPal needs to do is limit the number of Friends and Family payments you can receive in a calendar year, such as ten a year or one a month. Or else put in place a method to flag the account if a person is receiving payments from "friends" all over the country (or world) in unusual amounts (like $42.25, when an actual friend would send $50).  

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: railady This user has validated their user name.

Sat Jun 25 11:46:59 2022

@The End - you must have had problems with them to want PP to close.  As for me, despite the current problem I just posted about what I believe are unwarranted holds, this is the first time I have ever had an account ''problem'' (other than the customer/purchaser whose account turned out to have been hacked back around 2005 or 2006, and PP fixed everything on my seller end).  

It would be terrific if they would address a few issues, but for me, PP has been incredibly helpful and easy to use. Any time I have a question, a phone call has quickly resolved it.  So far my most significant issue is that I got at least an hour of personal attention trying to recover postage I paid on a return, that the seller refused to refund. I am a small seller. Where else can I find this kind of service? I can't guarantee credit card issuers the minimum sales $ they need.  Use ''Square'' or one of those services? Way more complicated and what I've encountered is more costly.  

Just my 2 cents.    

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: railady This user has validated their user name.

Sat Jun 25 11:52:10 2022

@iheartjacksparrow - Just caught your post!  Really good ideas! I'm also wondering if maybe they are using "mystery shoppers" already to catch the most flagrant ?  I can empathize - I have been paying $20 a month to my daughter-in-law for our share of the family phone plan; she pays my grandson for us and her family. This truly is a personal expense, and it's been so incredibly convenient, but I really don't want the aggravation of trying to open a personal account just for that.  

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: railady This user has validated their user name.

Sat Jun 25 12:00:47 2022

WHOA and sincere apologies -- am I misinterpreting this ? Reading again, it looks like my business account can still SEND a F&F payment but not RECEIVE them (?) which is fine with me !!!

 

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

This user has validated their user name. by: The End

Sat Jun 25 12:13:01 2022

Hi railady  :o)
I am Anti PayPal because of what they do to people.
If they do it to them, they would do it to me.
There are THOUSANDS of documented instances of PayPal abuse and grand theft.
That should never be rewarded.
PayPal is a LOSER.
Too many insider phishing emails.
Not gonna happen to me......
I use Stripe Payments (12years and running), never a hitch, and they are Super Secure AND a pleasure to do business with.
That's it.
Just want people to know which payment entity is The BEST > Stripe.

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: That Guy This user has validated their user name.

Sat Jun 25 12:36:46 2022

I'm just surprised people are still using preypal.

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: Old School Seller This user has validated their user name.

Sun Jun 26 09:00:55 2022

@iheartjacksparrow
Wholeheartedly agree, and I do believe these limits will happen eventually.  These limitations will need to be across the board though with ALL payment apps!  

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: Sierra This user has validated their user name.

Mon Jun 27 00:37:51 2022

This may be the best thing I've heard all month! I ran across the same information earlier today on my own, after hearing rumors about PayPal changing its fee structure yet again.

When PayPal raised their fixed fee from $.30 to $.49, I started using Square for more invoices because their fees seem to be lower. Now that PayPal will be doing away with the fixed fee altogether, I can go back to using PayPal (except for the customers who don't like / trust PayPal).  

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: smallstuff This user has validated their user name.

Mon Jun 27 01:02:16 2022

The change in rates will probably not affect me at all.  In most cases, I generate an invoice and the rate will stay at 3.49% plus the 49 cent transaction fee.  As I understand it, the only time the rate drops to 2.99% is if the other party just sends me the money.  Or if we are in the same place and I key in their credit card number or use the app to read the credit card.  I guess we'll have to see how this works out.

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

This user has validated their user name. by: Lightning

Mon Jun 27 01:22:01 2022

''PayPal also revealed it will streamlining the Goods and Services seller fee to 2.99%, with no fixed fee, for customers in the U.S. PayPal's current Goods and Services fee is 2.89% + $0.49 USD.''

Within the last year, everyone was complaining about the 30 cent processing fee that eBay charged not being included in the refund, if one was made.  I pointed out that PayPal was charging 49 cents, and not refunding ANY part of the total fee paid when it came to refunds.  I also said that I wouldn't be surprised if the transmittal companies just dropped the processing fee part (.30 or .49) that everyone complains about, and raises rates to MORE than compensate.  And here we have the first entry in that race to our pockets.  More to follow, I'm sure.

The more you complain, the more vigorously and deviously they work around it, costing you more.  Because they can.

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: thebobman This user has validated their user name.

Mon Jun 27 09:48:53 2022

>>friends" all over the country (or world) in unusual amounts (like $42.25, when an actual friend would send $50).  

Not really weird. Imagine a old friend flies into town from across the country, you go out to dinner and split the bill, total was like 84.50, or maybe they got 2 drinks instead of one, and they forgot their wallet in the hotel room. And then paid it when they got back home.

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: spooky This user has validated their user name.

Mon Jun 27 09:52:56 2022

This is an example of why I am moving a large amount of my items to sites that sell locally for cash only. I am also putting carloads every week through a local auction sale. The 1099 is killing me, I am giving up 40% off the net. Can not run my business that way any longer.  

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: fusgeyer This user has validated their user name.

Mon Jun 27 12:37:31 2022

I dont bother with PayPal Friends and Family payments. I use CashApp for that. No fees unless you take an immediate withdrawl of cash or to a credit/debit card. Don't like to keep all of my money in one basket. You can use CashApp for business too, if you want.

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

This user has validated their user name. by: Working It

Mon Jun 27 12:54:26 2022

In the past, I have used my Business PayPal account to also receive payments from friends around the country for items we sourced locally for them.

What I mean by that is they were looking for something that we (or they) found at an auction local to us, they told us how much they were willing to pay, and we bought it, sent it to them, and let them know the total cost, including shipping. Since we were buying for ourselves, as well, it was not an inconvenience (other than shipping the items).

We never profited on these transactions, but now that they can't send FF payments, we will have processing fees to pass along to our friends, plus tax liability (or more paperwork) for helping out friends.

As usual, this situation is ALL because OTHER people cheat the system!  

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

This user has validated their user name. by: Lightning

Tue Jun 28 00:41:25 2022

''The 1099 is killing me, I am giving up 40% off the net.''

Sounds like someone hasn't been reporting their sales.  

Now, when faced with actual accountability for sales, can no longer make tax-free profits.  No sympathy here.  

Report your sales, report your expenses, report your net.  Do it right, or don't do it at all.

Perminate Link for PayPal Closes Loophole on Fee Avoidance   PayPal Closes Loophole on Fee Avoidance

by: Missingcord.com This user has validated their user name.

Tue Jun 28 07:09:30 2022

So even less reason to use paypal at all. heh

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