Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Fri Dec 20 2019 13:19:13

Extra Step Required When Reporting eBay Sales to IRS

By: Ina Steiner

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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

eBay
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?



Comments (69) | Leave Comment | Permalink

Readers Comments

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: iheartjacksparrow

Fri Dec 20 13:51:19 2019

If a seller deducts the tax collected from the amount PayPal reports as income, doesn't that mean that the seller's figures will not match with the figures on the Form 1099-K? Is the IRS going to go after every seller where eBay has collected tax? And what if the seller doesn't meet the threshold for a state and eBay still collected the tax? Does the seller get a refund?  

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

by: notfunanymore This user has validated their user name.

Fri Dec 20 13:57:36 2019

The absurdity of this is beyond any realm of reality. Can’t even imagine selling anything on this joke of a venue.  They just push and push  sellers and they just keep taking beatings. First it was collect sales tax on your own and report it. Then it was get sales tax permits for each state. Very costly. If you didn’t have permits and collected tax, you would be suspended. After wasting all the money getting permits, they decide they will collect sales tax. Now, you have to figure out how much eBay collected in sales tax on your sales and deduct that from your 1099... wow!! Just wow! Wake up sellers!!

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: NoMoreEbay

Fri Dec 20 14:04:02 2019

The sheer amount of tax errors this year are going to be incalculable. Between the taxes, the annual shipping increases, the fees, the scams and the overall corruption, it's a wonder anyone is left selling online. I'm really perplexed how anyone can make a profit anymore.

I am so glad I vacated this chaotic greed-fest last year.  

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

by: eBaySince2006 This user has validated their user name.

Fri Dec 20 14:23:55 2019

I've been selling full time on eBay since 2006. I have survived a recession, audits, rolling reserves, etc and I have to say the end of 2019 has been one of the most challenging for me when it comes to all the money grabs going on. It seems like everyone including the state govts, IRS, eBay, PayPal, and shipping companies came for smaller online sellers all at once without the infrastructure in place and lets us sellers to pick up the pieces.

I called my state comptrollers office to see what I do now that eBay collects the sales tax for me and their response... "Don't file a return but if you get audited just show us that eBay is submitting the sales tax for you." The last thing a business wants is to get audited, they should have a better response than that.  

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

by: thievesBay This user has validated their user name.

Fri Dec 20 15:34:52 2019

Typical eBay. They keep taking more and more from you (money, features, selling tools, sales) while doing less, with ever-increasing "rules", and at the same time pushing more work upon sellers. This is not only on taxes, it's EVERYTHING about trying to sell on this dumpster fire of a "platform". If you're still using eBay, you're not running your own business. eBay is. You work for them.

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: Marie

Fri Dec 20 16:10:32 2019

For those this seems to be burdensome, wrong or otherwise surprising.  It is likely you have been claiming too much sales in previous years from what PP reports on the 1099K.  

PP does NOT report INCOME to the IRS.  PP is required to report GROSS RECEIPTS on the 1099K.  That is NOT the same thing as Gross Sales or Income.  This has been true since the day 1099Ks were introduced to us.

The sales you report on your Schedule C does not have to equal the 1099K.  It is a starting point and then you take deductions from that amount to arrive at your proper sales amount coming through PP.   Deductions in past years would be for Sales tax you collected for sales within your state, refunds you gave for whatever reason, etc.  Now you just need to add the sales tax that Ebay is collecting for various states as a deduction from the Gross Receipts.  

This is extremely easy to do.  PP offers some great reports so that you can balance to your 1099K and great detailed reports so you can drop them into a worksheet program and do the adjustments you need to do for your tax reporting.

On the PP detailed transactions reports that you can get there is a separate column for the sales tax on the payment that was processed.  It is so easy to get a total by month and year from the worksheet you create from this data.  This is actually something that should have been done in all the previous years to get the correct amount of actual sales that ran through PP so you can balance it to your own books.

These should all be cross check numbers as all sellers should be keeping their own sales records.

Here is the IRS form that may help explain this further for some.

https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: Marie

Fri Dec 20 16:13:32 2019

It is the misinformation and misunderstandings on this subject that is causing some to be upset with Ebay.  

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: Lightning

Fri Dec 20 16:38:27 2019

This is just another of many Chicken Little situations, ''the sky is falling''.  Just the mention of it in this article was meant to prey on fears of audits, and sensationalize something that is very benign.  The original publications says, as does here, that the Sales Tax collected ''will be on the report''.  I know this is hard for some, but you will actually have to SUBTRACT the tax from the reported sales.  Wow.

As Marie outlines, there are a LOT of things the average seller might want to subtract, and should do so.  This is just one more.  Much ado about nothing.  If you want to give your Congressperson a belly laugh, write to complain about it.

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

by: Geetar This user has validated their user name.

Fri Dec 20 16:46:47 2019

Thank God I still use paypal. This whole thing is a mess, and if I was on managed payments I know it would be more difficult without paypal.

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

by: Geetar This user has validated their user name.

Fri Dec 20 16:48:40 2019

You better hope we dont have a recession in the next few years. If we do the difference between the projected take in taxes and actual will prompt them to come after us.

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: Marie

Fri Dec 20 16:58:38 2019

@Geetar

Will prompt who to come after who and for what?

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: NoMoreEbay

Fri Dec 20 17:04:14 2019

The reason they didn't program this simple subtraction is because they probably have a back end kickback deal with the States. They know millions of sellers will overlook it and end up paying more taxes. Mo money, Mo money.

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: Marie

Fri Dec 20 17:13:50 2019

@NoMoreEbay

No that is not the reason.  If it was, then PP would have been deducting sales tax long before this.  Remember when you had to collect sales tax for the state you are in.  PP never has deducted that from the total receipts.

Or PP would have deducted refunds from the total receipts.  They don't do that either, never have.

The reason for this is not some requirement by Ebay which some what to make it seem like it is.  It is because the IRS requires them to report Gross Receipts.  They do it the way they do it because IRS requires them to do so.

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: NoMoreEbay

Fri Dec 20 17:34:57 2019

Sellers never saw a dime of that money. ebay collected those taxes and 'supposedly' sent them to the states. No one really knows what happened to the money. No one knows if it's accurate or anything else about it. Yet it's on the seller's 1099k and it's the seller who will burn if there's a mistake or theft on ebay's part.  

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

by: Geetar This user has validated their user name.

Fri Dec 20 17:38:23 2019

They will go after anyone, and anybody who they think made mistakes on taxes.

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: Marie

Fri Dec 20 18:09:46 2019

If Ebay doesn't send the money to the various states as required, then that is on them.  They are legally responsible to do that.  It is not at all likely that Ebay would not remit the tax as they are suppose to.  I understand and respect that many have a deep and real dislike for Ebay.  That however doesn't translate into this concern being realistic.

Sellers are NOT legally responsible for the sales tax collected by Ebay in states with Marketplace laws.  So there is no risk to sellers.  They aren't laws that state if Ebay doesn't pay the tax then the sellers will have to.  These are laws that place the responsibility squarely on Ebay.

It isn't individual sellers concerns or responsibility to know if Ebay is collecting and remitting the sales tax appropriately.  That is between Ebay and the various states.  The individual sellers play no part in this responsibility at all when a Marketplace law is in place.

As to the fees we are having to pay PP for the sales tax Ebay is collecting from buyers.  I firmly agree with everyone that is against these fees.  I do think it is wrong as well.  So I absolutely agree with you on that point.

@Geetar

Who is "they"?  The states?  They can only go after those that are legally responsible to collect and remit the taxes.  And in states with Marketplace laws that would be Ebay, not the individual sellers.  

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: NoMoreEbay

Fri Dec 20 19:11:43 2019

@marie.

I hear ya but  I don't trust anything ebay does, especially when it comes to money. At the end of the day, it's the seller's 1099k's not ebay's. And if there is a tax error, the IRS is going to look there first.

I'm sure sellers don't want to spend hours navigating the maze of IRS auto-attendants to reach a call center to explain the law. Or worse and very costly, hire an attorney just to prove you are not in the wrong.

One can assume all day long they are protected by the law. But when it comes to  law and protections concerning ebay, there are none.

Hopefully for current sellers this is indeed a benign issue. Time will tell.  

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

This user has validated their user name. by: iheartjacksparrow

Fri Dec 20 19:23:23 2019

If eBay is so honest about collecting and remitting taxes, why is it that when I was charged "use" tax the day after a purchase from a U.K. seller, it showed up on my credit card under the heading "Utilities"?  

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

by: industrystones This user has validated their user name.

Fri Dec 20 19:41:32 2019

@MARIE

"  It is not at all likely that Ebay would not remit the tax as they are suppose to. "

-REALLY????  Did you REALLY just say that???

Perminate Link for Extra Step Required When Reporting eBay Sales to IRS   Extra Step Required When Reporting eBay Sales to IRS

by: thievesBay This user has validated their user name.

Fri Dec 20 20:06:54 2019

@industrystones Agreed. 2 different things here: 1) Tax eBay collected that they're supposed to submit. 2) Overcharged tax or collecting where it's not warranted, eBay will 100% definitely keep it. Yep it's fraud, and nope, eBay doesn't care. Who will actually investigate them for tax fraud? Nobody, because these companies are allowed to do whatever they want without any restrictions. eBay takes everything to a questionable level of legality in everything they do. Have for years.

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