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Thu Aug 7 2008 13:10:00

PayPal to Report eBay and Merchant Payments to IRS

By: Ina Steiner

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eBay sellers and online merchants are facing increasing regulation as ecommerce moves out of the infancy and adolescence stages and into adulthood. The latest legislation to impact merchants is the Housing and Economic Recovery Act of 2008 recently passed by Congress and signed into law on July 30. PayPal told merchants it would begin reporting payment activity to the IRS.

PayPal said early versions of the legislation would have required it (and all payment providers) to report total payment volume of customers who received as little as $600 per year. PayPal said the new law requires it to report to the IRS the total payment volume received by PayPal customers in the U.S. who receive more than $20,000 in payment volume in a single year and receive more than 200 payments in a single year. The new reporting requirement takes effect in 2011.

According to Kathleen Pender of the San Francisco Chronicle, banks and payment processors must also disclose the dollar amount of payments merchants receive on debit- and credit-card cards. The reporting forms would be similar to the 1099 forms companies use to report other payments to the IRS.

It's interesting to note that more legislation affecting online sellers is under consideration. The National Retail Federation reported two bills recently introduced into the House of Representatives that would place more liability on eBay in cases of suspected "e-fencing." One bill would make e-fencing a federal crime, calling it "organized retail crime."

While legislation seems to target larger sellers, small and casual sellers may become casualties as eBay and other ecommerce-related companies impose policies to help meet such requirements.

Also on the agenda of state legislators, of course, is sales tax collection, which Amazon and Overstock.com are already battling in New York state with regard to their affiliate programs. Expect things to get more complicated for ecommerce providers and online merchants in the coming years.

Update: Someone had asked whether PayPal would be required to report sellers who receive more than $20,000 in payment volume in a single year AND receive more than 200 payments in a single year, or whether it was "OR." PayPal got back to me to say it is 200 transactions AND more than 20k per year.






Comments (26) | Permalink

Readers Comments

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: otto

Thu Aug 7 14:22:56 2008

''PayPal got back to me to say it is 200 transactions AND more than 20k per year.''

OK, so just to clarify further (because I'm still confused).

If, as a seller I receive 375 payments in a year totaling $2,500, then I do NOT get a 1099?

This is how I interpret it. Am I correct?

Then it would seem that someone could take in $76,000 in 4 payments and also NOT be reported (say he sells four cars). That seems wrong...

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: softersilk

Thu Aug 7 14:26:21 2008

Good!  Those of us who honestly report our income have nothing to worry about.

I'm crossing my fingers that this initiative will snag the cheats, who cost the honest people money!

I'm sick of paying for those members of society who use resources but don't pay their share.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: FEELING THE NOOSE

Thu Aug 7 14:29:56 2008

MOVING TO CRAIGSLIST, EBAY, PAYPAL MAKING TO MUCH MONEY OFF OUR EFFORTS AND WE ARE WEARING THE BURDEN WITH EMPTY POCKETS NOW THEY WANT TO INVOLVE THE IRS ? LIKE THEY DONT TAKE ENOUGH FROM US ALREADY ? GEZZ ATLEAST WITH CRAIGSLIST THERE IS NO FEES AND I CAN KEEP THE MONEY I WORK HARD FOR.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Ann

Thu Aug 7 14:42:27 2008

@feeling the noose

For once, this is NOT PayPal's fault or initative. This is coming from Democratic Congressional lawmakers in Washington to make sure the IRS is able to collect the income taxes that online sellers are already legally require to report to the IRS and pay, but most do not.
I am a PowerSeller and will be affected by this. However, since I am an honest taxpayer and already report this income (and take all the deductions I can for a home-based business), the effect is minimal. If anything, it will actually make it easier to report my earnings because I will now have a 1099 to back it up rather than having to try and figure it all out myself.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: CashBackatEbay

Thu Aug 7 15:01:42 2008

It's about time eBay reports earnings to the IRS. This surely will help entrepreneurs (and their CPAs) at tax time! You'd be surprised how many large scale sellers don't really know how much they make. Taxes for many become an approximation simply because the mathematics is overwhelming.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Thoreau

Thu Aug 7 15:28:51 2008

How does PAM know that most do not pay taxes? I pay my share. To bad I dont support war or they would get more

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: gail

Thu Aug 7 15:39:10 2008

Those of us who have been reporting all along will have no problems with this, it is the sellers that do not report their income that will be sad. I don't feel a bit sorry for them. I have been on boards where people have discussed their on-line sales and I was astonished at how many didn't report their income or even felt that they needed to even if they were set up as a 'business'. I don't recall any IRS rule that makes on-line income non-taxable.

FEELING THE NOOSE: apparently you are one of the ones who don't think you need to pay taxes? Ebay and Paypal did not involve the IRS, it was the other way around and I'm sure they hate the reporting they will have to do way more than you do.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Barbara

Thu Aug 7 15:48:46 2008

Hooray,since I am a taxpayer its about time the other guy starts to pay his share.
But somehow or another I think paypal and ebay will find just one more way of making money off of this from this new rule. Where there is no way, they will make a way.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Pual

Thu Aug 7 18:36:41 2008

Unfortunately, this will create another fee imposed by Ebay and Paypal to cover the administrative costs. However this fee will be imposed on all Ebayers and Paypal users, even those who pay there taxes and those under the 20k and 200 sales. More money out of everyones pocket. Add to the fact that so much money is already wasted by government. Maybe if the government had less money to spend it would be more careful on how it spent it. I never agreed to pay for a 300.00 dollar hammer with my tax money!!!!!

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Just a TaxPayer

Thu Aug 7 18:53:55 2008

I've been reporting ancillary income for years, and it has seldom been that big of an issue.  In 2005, when my Sched C income jumped due to increased eBay sales, the IRS asked me to come in for a chat.  No problem - I had my records and we had a nice little chat.  The auditor inferred at that time that the IRS was very interested in online sales, especially those that were unreported.

Since I had been reporting my extra income/expenses for years, it was only the jump in the amount that triggered the audit.  Since my paperwork was in order, there was really nothing for them to do but verify and thank me for my time.

The ones I feel sorriest for are those who foolishly thought that online income was somehow exempt from income tax.  Ask any tax preparer worth paying for and they will all explain to you how it works.  These people have no one but themselves to blame.

As others have stated, this will actually make my job easier - now I will have a 1099 document instead of pages of PayPal register printout.  Sweet!

No troubles here - and I'm glad to see the effort is directed at all online payment processors -- not just PayPal.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: otto

Thu Aug 7 19:42:24 2008

Somebody want to answer my simple question please.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: TR

Thu Aug 7 20:06:24 2008

Keep in mind, Paypal is not the only entity that will have to report earnings to the IRS. This is also going to hit those sellers who use Google Checkout and the other merchant payment programs out on the web.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: eBuyer Feedback

Thu Aug 7 20:48:10 2008

I'm glad this finally happened.  Unfortunately I have one of those ''chats'' with the IRS in about six weeks.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Jake

Thu Aug 7 23:46:26 2008

So, now I'm going to have to give my social security number to PayPal? Ugh.

Well, thankfully I have an EIN I use for such purposes.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Mechelle

Fri Aug 8 00:29:53 2008

trying to link my name to a site - so hopefully it will work.

Anyway- it is relevant to paypal & eBay and might interest some people

hopefully the link works

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Mechelle

Fri Aug 8 00:30:50 2008

nope so here it is

http://docs.google.com/View?docid=dhbn73c3_1c89k33cq

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Steve

Fri Aug 8 10:48:43 2008

Otto,

Your question was answered in the update--you need to hit both thresholds.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Beady Eyes

Fri Aug 8 12:46:46 2008

Ann,

Please keep the partisan politics out of this discussion.  This has NOTHING to do with democrats as much as it would have nothing to do with Republicans.  The IRS is pretty much it's own entity as we've seen over the years.

Their job is to maximize the government's coffers.  If you want to use politics (and I am no dem, btw) I could argue if this dumb Iraq war hadn't been started, maybe the need for more money wouldn't be extended to sites such as paypal.

This country is going broke fast and BOTH parties are to blame as well as the American citizens who keep electing these idiots.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: Beady Eye Guy

Fri Aug 8 12:48:50 2008

BTW - I could also point out that the GOP got us into this financial mess to begin with.  The Dems have no spine so they allow this nonsense to happen.

Pretty funny when somebody plays the Dem/GOP game.  NEITHER party is good for America.

PayPal to Report eBay and Merchant Payments to IRS   PayPal to Report eBay and Merchant Payments to IRS

by: tolun

Sat Aug 9 11:28:59 2008

The new requirements don't go into effect until 2011, so you all have about three years to prepare yourselves for this. It is unlikely to make any kind of impact on your activities in the next two years or so. Also, it won't have a significant effect on taxes collected, most individual eBay sellers will fall under the $20 grand a year requirement and those that grow their business to such an extent will be able to claim deductions for business expenses and so on. I'm sure most larger volume sellers already run a properly-reported business so this will catch only a small percentage of online merchants who fall between small-time sellers and large businesses. You would have to make an average of $1600 a month or so before the IRS will take an interest in you, so if you are a seller making $1000+ a month in gross sales now and want to grow your business, it's a wake-up call to get everything in order now and prepare for growth.

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