Some Massachusetts and Vermont residents are getting an unpleasant surprise in the mail this week from PayPal thanks to revenue-hungry legislators in their states. And beware, other states may follow.
Payment processors such as PayPal are required to send 1099Ks to customers who process $20,000-plus-200 transactions in a year. But some people are getting 1099Ks from PayPal for amounts as low as $600 with very few transactions.
That's because Massachusetts and Vermont retroactively passed new laws last year requiring payment processors to file 1099Ks for customers who processed at least $600 in 2017, no matter how little the number of transactions they processed. (We live in Massachusetts and follow small-business and tax issues, and we hadn't heard a word about this new law until today.)
Sellers who inquire about the surprise 1099Ks are reporting on forums that PayPal is telling them it is not sending the form to the Feds - we've got a question in to PayPal about this. We also asked PayPal why it didn't inform sellers of the change ahead of time (as a courtesy), since this came as a complete surprise to many sellers until they opened their mail this week.
Some may have little sympathy for those impacted, assuming they are tax evaders. But this also impacts people selling casually who are following IRS guidance about "Online Garage Sales" - see this page
on the IRS website.
On one board, a seller noted he received a 1099K for $630. He said he had probably paid $1,000 for the items, so didn't profit from the sales. But given that the law is retroactive, someone in his shoes may not have considered whether they had receipts for the items before selling them online last year.
Such laws will likely push casual sellers towards local selling through classified sites and apps, including Craigslist and Facebook, unless / until lawmakers figure out a way to track cash transactions.
: To be clear, this isn't about state sales
tax, it's about state income
tax. See more info on 1099Ks in this post
See today's Newsflash article
, "PayPal Advises Etsy Sellers on Dupe 1099K Tax Forms."