|Mon Oct 3 2011 11:49:26|
Small eBay and Amazon Sellers Getting Screwed by New Tax Law
By: Ina Steiner
The government and fraud experts tell us to carefully guard our social security number, but a new regulation is giving carte blanche to ecommerce companies to collect those numbers from small sellers.
PayPal won't disclose what triggers its request for tax ID numbers (see "PayPal Coy about Request for Seller Social Security Numbers"), but Amazon just revealed it will require sellers with only 50 transactions - no matter the dollar volume - to provide tax ID numbers (TINs).
The Housing and Economic Recovery Act of 2008 contains a provision, H.R. 3221-6, TITLE III-REVENUE PROVISIONS, which I've written a lot about since its passage. The law requires that payment processors send 1099K reports to the IRS each year, beginning in 2012 for tax year 2011, containing the gross amount of transactions processed on behalf of each customer.
The law is very clear that small businesses are exempt from the reporting requirement - companies such as PayPal, Google and Amazon need only issue form 1099Ks to entities with 200 transactions AND $20,000 in payment volume per year. Yet eBay and Amazon are requiring sellers that fall well below those limits to hand over their TINs.
Unfortunately many sole proprietors are unaware they can obtain tax ID numbers from the government so they don't have to provide social security numbers as they conduct business.
Thus, many small sellers on sites such as eBay and Amazon are facing a dilemma - hand over social security numbers or face account suspension, which would effectively kill their business.
This is not about whether small businesses should be paying taxes on their income - rather, these policies of collecting social security numbers go against the spirit of the law. Lawmakers exempted small businesses from this particular reporting regulation for a reason, and it's unpalatable for many individuals and mom-and-pop businesses to feel they must provide their social security numbers to companies like PayPal.
We'll be doing research this week for an EcommerceBytes Newsflash news story to see if the IRS is requiring companies to collect this information even for sellers that fall well below the law's reporting requirements, or if companies are being overly aggressive in collecting Tax ID numbers.
In the meantime, here's the full letter Amazon sent to sellers about the requirement.
Beginning with the 2011 tax year, new IRS regulations require Amazon to file a Form 1099-K for sellers who exceed $20,000 in unadjusted gross sales and 200 transactions in a calendar year. To assist in complying with these regulations, we are requiring sellers who exceed 50 transactions in a calendar year, regardless of monetary threshold, to provide their tax identity.
Please provide your TIN to Amazon as soon as possible to prevent disruption to your seller account. Note that if the required information is not provided to Amazon by December 26, 2011, your Amazon selling privileges will be suspended until you provide the information.
You can enter your tax information in your seller account, using a short interview process that can be accessed from the Seller Account Information > Legal Entity section.
For additional information about entering your tax information, see answers to frequently asked questions:
Learn more about the regulations and Form 1099-K at the IRS website:
Important Notice: Information in this document does not constitute tax, legal, or other professional advice. To find out how this new legislation will affect your business, or if you have other questions, please contact your tax, legal, or other professional advisor.