|Mon Dec 20 2010 20:56:40|
PayPal Puts IRS Rumors to Rest
By: Ina Steiner
eBay's online-payments subsidiary PayPal has already begun asking some merchants for their tax ID numbers to help them comply with a new tax law, but PayPal said it would not expand beyond the IRS reporting requirements it is obliged to follow for tax-year 2011.
Rumors have been surfacing about how a new requirement might impact small sellers who accept PayPal payments. I've been writing about this issue for AuctionBytes.com since the new requirement was included in the Housing Economic Recovery Act of 2008, and some sellers are clearly still nervous about the implications of the legislation.
The law requires banks and other payment settlement companies that processes credit cards, debit cards, and electronic payments to file a new form, Form 1099-K, telling the IRS what online and offline merchants receive in payments, effective for the 2011 tax year.
For any person or entity that is selling goods or services and receiving payments through a payment processor, the money collected from sales will be reportable on Form 1099Ks - if they exceed $20,000 and 200 transactions in one year. (The "and" means that merchants who receive 1,000 transactions totaling $19,000 would not be affected - both criteria are needed to trigger the reporting requirement.)
One rumor circulating is that PayPal would issue 1099Ks for sellers with payments lower than the required thresholds. A PayPal spokesperson said this was incorrect. "PayPal will be using the IRS thresholds for reporting (merchants receiving over $20,000 in gross sales volume AND 200 payments or more)."
There has also been talk of sellers leaving eBay because of the reporting requirement, and that sites that allow sellers to advertise that they accept non-electronic forms of payment (checks, money orders and cash) may benefit from any such exodus.
Note that the law does not change sellers' existing obligation to report income. Some sellers who are in compliance and pay their taxes simply don't want to deal with more paperwork, while others may be wary of just how the IRS will use these reports.
PayPal has already begun collecting tax ID numbers - social security numbers for individuals and sole proprietors, and TIN or EINs for businesses. In response to my inquiries, a PayPal spokesperson said the following:
"PayPal has not begun reporting and will not report any payments received in 2010. Transactions occurring prior to 2011 will not be affected by this legislation. Starting in 2010, however, PayPal began asking impacted merchants to update their account by adding their SSN/TIN/EIN to their existing account(s). This information will only be requested from merchants that are potentially impacted by IRS requirements. If you are required to add this information, we will notify you via email and include an alert in your Account Overview."
Individuals and sole proprietors can obtain a Tax ID Number if they don't wish to reveal their social security number to payment processors. You can read more information on the PayPal website.
Sellers should be wary of phishing emails from scammers pretending to be from PayPal or the IRS, or any other payments processor such as credit card merchant account services.