All US payment processors, including PayPal, are required to provide information to the US Internal Revenue Service (IRS) about customers who receive payments for the sale of goods and services above the reporting threshold in a calendar year.
Will I have to pay taxes when sending and receiving money on PayPal - what exactly is changing?
Beginning January 1, 2023, the Internal Revenue Service (IRS) implemented new reporting requirements for payments received for goods and services, which will lower the reporting threshold to $600 USD for the 2023 tax season, from 2022’s threshold of $20,000 USD and 200 transactions. Here’s some more detail:
1099-K Threshold Change:
- This new Threshold Change is only for payments received for goods and services transactions, so this doesn’t include things like paying your family or friends back using PayPal for dinner, gifts, shared trips, etc.
- This change was introduced in the American Rescue Plan Act of 2021, which amended some sections of the Internal Revenue Code to require Third-Party Settlement Organizations (TPSOs), like PayPal, to report goods and services transactions paid to customers with $600 USD or more in annual gross sales on 1099-K forms. Previously, a 1099-K is only required when a user receives more than $20,000 USD in goods and services transactions and more than 200 goods and services transactions in a calendar year.
|Tax Year||Year Form Available||Federal Reporting Threshold|
More than $20,000 USD in gross sales from goods or services AND more than 200 transactions in the calendar year.
$600 USD or more in gross sales from goods or services in the calendar year.
For residents in Vermont, Massachusetts, Virginia, or Maryland
If you live in the following US states, you’re subject to a lower reporting threshold:
- Vermont, Massachusetts, Virginia, Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions.
The Form 1099-K that you receive is based on your primary address on the last day of the previous tax year. If you changed your primary address to one of these states after that date, your account activity will be captured in Form 1099-K reporting for the following tax year.
What is a Goods and Services payment with PayPal?
Both PayPal and Venmo offer a way for customers to tag their peer-to-peer (P2P) transactions as either personal/friends and family or goods and services by choosing the appropriate category for each transaction. Users should select Goods and Services whenever they are sending money to another user to purchase an item, like a couch from a local ad listing or concert tickets, or paying for a service. These transactions are also eligible for coverage under PayPal and Venmo’s Purchase Protection Program. Goods and services payments are designed to provide both buyers and sellers peace of mind knowing that they may be covered if the transaction doesn’t go as expected.
Will the updated 1099-K threshold change apply if I sell personal property, like a couch or an item at a garage sale, for $600 or more if it was sold for less than its original value? Will I be issued a Form 1099-K?
Form 1099-K is an IRS informational tax form that is used to report goods and services payments received by a business or individual in the calendar year. While payment service providers, like PayPal and Venmo, are required by the IRS to send customers a Form-1099K if they meet the $600 threshold amount, there are certain amounts included on the form that may not be taxable. PayPal is required to report the total gross amount of payments received for goods and services which can include:
- Amounts from selling personal items at a loss
- Refunded amounts
- Processing fees
However, certain amounts may not be considered taxable income to you. We encourage customers to speak with a tax professional when reviewing their 1099-Ks to determine whether specific amounts are classified as taxable income.
What is Form 1099-K?
Form 1099-K is an IRS informational tax form used to report payments received by a business or individual for the sale of goods and services that were paid via a third-party network, often referred to as a TPSO or credit/debit card transaction. The IRS requires TPSOs, such as PayPal and Venmo, to issue a Form 1099-K, which shows the total amount of payments received from a TPSO in the calendar year. Taxpayers should consider this amount with their tax advisor when calculating gross receipts for their income tax return. For more information, visit the IRS website here. If you meet the IRS threshold in a given calendar year, PayPal will send you a Form 1099-K in January of the following year, and file this form with the IRS by the required due date.
You can access your Form 1099-K from your PayPal account from January 31 and your Crypto gains and loss statement from February 15. Please go to the new PayPal Statements & Tax Center. Merchants, please go to your Tax Statement Page. You can also view and download your Form 1099-K online by January 31st annually. You won’t receive a Form 1099-K if you didn’t meet the reporting requirement for the tax year.
What do I need to do when the 1099-K threshold change takes effect?
PayPal and Venmo will ask customers to provide tax information like an Employer Identification Number (EIN), Individual Tax ID Number (ITIN), or Social Security Number (SSN), if they haven’t already, as they approach the reporting threshold, so they may continue using their account to accept payments for the sale of goods and services without any issues. If your TIN fails verification, you'll need to fill out an equivalent tax form W-9. If there are any discrepancies between what is reported by the IRS for your TIN and name and what PayPal has on file and used for Form 1099-K, you may receive an IRS B-Notice.
How does this 1099-K threshold change impact how I use PayPal?
This change should not impact how you use PayPal and Venmo. You can continue to use the PayPal and Venmo platforms as you do right now, and the benefits that are offered by sending money via our goods and services P2P feature – including buyer and seller protections on eligible transactions for PayPal and Venmo.
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