eBay sent a notice to sellers advising them of an extra step required when reporting sales to the IRS. Now that eBay is forcing sellers to handle payment processing for the sales tax that it is required to collect from buyers, sellers must back out the sales tax portion from the gross payments reported to the IRS by PayPal on Form 1099-K.
Referring to the Form 1099-K that PayPal will file with tax authorities for sellers who reach a certain threshold, eBay stated, "Please be aware that the totals shown on the form will include internet sales tax. You will need to remove the total amount of sales tax collected (will be outlined in the report)."
Payment processors must report payment amounts to the IRS on Form 1099-K when a seller reaches a threshold of $20,000 in gross payments with over 200 transactions.
Sellers located in Massachusetts and Vermont should be aware that they will receive a Form 1099-K if the gross amount of payments equals or exceeds $600, irrespective of the number of payments, and those states will be notified in addition to the Internal Revenue Service.
An EcommerceBytes reader forwarded the following notification he received from eBay on December 19, 2019:
Subject: Information regarding your tax Form 1099-K
Form 1099-K includes the gross amount of payments made to you within a calendar year
If you've sold at least $20,000 in gross merchandise value and exceeded 200 transactions for goods and services* on eBay this year, you will be receiving a tax Form 1099-K for all your 2019 sales transactions including relevant internet sales tax.
Internet sales tax was collected and applied to sales transactions for states that required eBay to collect tax in 2019. You can find more tax information and learn how to download your sales reports here and here.
Frequently Asked Questions
Who is sending the form to me?
PayPal will send a tax form 1099-K to you and the IRS by January 31, 2020. You can also access the form from your PayPal account.
PayPal will track the payment volume of your account(s) to check whether your payment volume exceeds both of these levels in a calendar year:
- $20,000 USD in gross payment volume from sales of goods or services in a single calendar year
- 200 payments for goods or services in the same year*
You may be asked to provide your tax identification number (TIN), such as a Social Security Number (SSN) or Employer Identification Number (EIN), to your existing account(s), if you don't already have one on file. If your TIN fails verification, you will need to fill out an equivalent tax Form W-9.
What do I do with tax Form 1099-K?
Form 1099-K is used to report income received from electronic payments such as credit cards, debit cards, PayPal, and other third party payers.
Please be aware that the totals shown on the form will include internet sales tax. You will need to remove the total amount of sales tax collected (will be outlined in the report).
Are you prepared to deal with this extra step when filing your taxes in April 2020?