Tax information reporting for online sellers

Everything you need to know about IRC Section 6050W

Internal Revenue Code (IRC) Section 6050W states that all US payment processors, including PayPal, are required by the Internal Revenue Service (IRS) to provide information to the IRS about certain customers who receive payments for the sale of goods or services through PayPal.

PayPal is required to report gross payments received for sellers who receive over $20,000 in gross payment volume AND over 200 separate payments in a calendar year. In order to help you understand these information reporting obligations, we have prepared the following FAQs. After reviewing the following FAQs, we recommend you consult your tax advisor to asses tax implications of Form 1099-K reporting.

FAQ

What is Internal Revenue Code (IRC) Section 6050W?

Under the IRC Section 6050W, PayPal is required to report to the IRS the total payment volume received by US account holders whose payments exceed both of these levels in a calendar year:

  • US$20,000 in gross payment volume from sales of goods or services in a single year
  • 200 separate payments for goods or services in the same year
 

IRC Section 6050W applies to all payment processors, including PayPal. Our goal is to help PayPal sellers understand and comply with the requirements.

 

How will I know if these rules affects me?

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 year
  • 200 payments for goods or services in the same year

You may be asked to provide your tax ID number, 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 you cross the IRS thresholds in a given calendar year, PayPal will send Form 1099-K to you and the IRS for that year early in the following year.

What does PayPal need from me when my PayPal transaction volume approaches the thresholds?

PayPal will ask affected sellers to update their account(s) by providing a tax ID number, if they don't already have one on file. Your tax ID number is one of these:

  • Your Social Security Number (SSN)
  • Your Employer Identification Number (EIN)
  • Your Individual Tax Identification Number (ITIN)

Please use the guidelines below to determine which tax ID number to provide. You should use the tax ID number that you use when reporting any taxable income related to your PayPal activity to the IRS.

Business Entities with an EIN

If you operate through a business legal entity such as a corporation or partnership you will need to provide your company EIN and company name.

Sole Proprietors with an EIN

If you operate as a sole proprietor using an EIN you will need to provide your company EIN and your own name. Do not provide a business name or a DBA name ("Doing Business As") with your EIN.

Individual Sellers and Sole Proprietors without an EIN

If you are an individual seller or sole proprietor and operate under your SSN or ITIN you will need to provide your SSN or ITIN and your name. Do not provide a business name or DBA name with your SSN or ITIN.

PayPal will also ask affected sellers to confirm that their account name matches the tax ID number provided and to confirm their physical address so that if Form 1099-K is issued, we can report your information accurately to the IRS.

If you are asked to update your information, PayPal will notify you via email, alert you when you log into the PayPal site, and display an alert in your Account Overview.

I am an individual seller. Do I have to provide my SSN?

If you have a SSN or eligible to have a SSN then you are required to provide that to PayPal for Form 1099-K reporting. If you are not eligible to have a SSN, you should obtain an ITIN from the IRS and provide it to PayPal. Please visit the IRS website (https://www.irs.gov/uac/about-form-w7 ) for information on the ITIN application process.

What happens if I don’t provide my tax ID number?

If you do not provide your tax ID number (Social Security Number (SSN), Employer Identification Number (EIN), or Individual Tax Identification Number (ITIN)) after we've requested it, we may place limitations on your account.

The limitations will be removed after you provide your tax ID number.

How is the $20,000 calculated? Will it be calculated based on net or gross transaction earnings?

As required by the rules, the $20,000 will be calculated by looking at a seller’s gross payment volume for sales of goods or services. Gross amount means that any adjustments for credits, cash equivalents, discounts, fees, refunded amounts or any other amounts will not be netted out.

In addition, the reported amount will include any shipping and handling, sales tax or other fees which are included in payments you receive. We realize that these amounts may or may not be included in your taxable income, but we are required to report them. You should work with your tax advisor to determine how these items should be treated for tax purposes.

Are personal payments that I receive counted in the total that will be reported to the IRS?

No. Personal payments that are not payments for the sale of goods or services will not be counted when determining if the IRS thresholds have been reached and will not be included on your Form 1099-K if you exceed the thresholds. However, all payments received for the sale of goods or services will be used to calculate the gross payment volume to be reported. PayPal monitors accounts to ensure that personal payments are not being used for sales of goods and services.

If I have multiple accounts that, when combined, meet the thresholds, but individually they don’t, will my accounts be affected?

Yes. PayPal and all other payment processors are required to determine if the IRS thresholds have been met and, if so, to report payment volume to the IRS by tax ID number such as a Social Security Number (SSN), or Employer Identification Number (EIN).

For example, if two accounts have the same tax ID number on file and have the payment levels shown below, PayPal will report both accounts on separate 1099-K Forms.

Example:

  • Account A - $18,000 in payments received for goods or services and 180 transactions
  • Account B - $3,000 in payments received for goods or services and 30 transactions

Will I receive a Form 1099-K if I only meet one of the thresholds?

No. A seller has to exceed both IRS thresholds ($20,000 in gross payment volume and 200 separate payments) in a calendar year before a Form 1099-K is required. We may require that you provide a tax identification number before you reach these thresholds however we will only report your payments if you exceed both thresholds.

Are non-profit organizations affected by IRC Section 6050W?

For purposes of IRC Section 6050W, non-profit organizations are treated the same as for-profit organizations. Non-profit organizations may be required to submit their Tax Identification Number (TIN). A Form 1099-K will be sent to non-profit organizations that exceed the thresholds for sales of goods or services.

Are non-US PayPal accounts affected by this law?

Internal Revenue Code Section 6050W requires PayPal's non-US subsidiaries to comply with the law. As a result, non-US account holders may need to certify their non-US status and their address. US sellers using a non-US PayPal account may be required to provide a tax ID number (Social Security Number (SSN), Employer Identification Number (EIN), or Individual Tax Identification Number (ITIN)) for those accounts. If you have an account with one of PayPal's foreign affiliates you may be contacted to certify your non-US status or provide a US Tax Identification Number (TIN).

Will I need to upgrade to a business account?

If you have a Personal or Premier account and you provide an Employer Identification Number (EIN) to PayPal, you will be asked to upgrade to a Business account. If you have a Personal or Premier account and you provide a Social Security Number (SSN) to PayPal, you will not be asked to upgrade to a Business account.

Will all sellers receive a Form 1099-K?

No. Only sellers who exceed the IRS thresholds will receive Form 1099-K. Sellers exceed the IRS thresholds when they receive over $20,000 USD in gross payment volume for the sale of goods or services AND receive over 200 separate payments for goods or services in the same calendar year.

I didn't receive a Form 1099-K and thought I was supposed to. What should I do?

If you feel you crossed the thresholds for reporting and did not receive a Form 1099-K from PayPal you should refer to the Help Center article located here for instructions on how to find your 1099-K tax statement in your PayPal account.

If a Form 1099-K was issued for your account, you will be able to find it using those instructions and it will be available to download or print. If a Form 1099-K is not listed, and you still feel like you should have one, contact PayPal for assistance.

How does PayPal calculate the dollar amount shown on the Form 1099-K?

The dollar amount shown on the Form 1099-K is your total gross sales for goods or services that were received through PayPal for the previous calendar year. As required by the IRS, this amount includes all fees and/or payments associated with your sales, including shipping fees or sales tax received.

As the dollar amount on your Form 1099-K is a gross amount, any adjustments for credits, cash equivalents, discounts, fees, refunded amounts or any other amounts will not be netted out.

Why is there an amount listed in Box 1b on my Form 1099-K this year when that box has been left blank in years prior to the 2015 tax year?

The IRS instructions for tax year 2015 require us to list the amount of “card not present” transactions in Box 1b. In prior years, this was optional.

A “card not present” transaction occurs when a customer of a credit card company makes a purchase and the credit card number is keyed into a terminal or is otherwise not swiped at the time of the transaction. Typically, this relates to online sales, phone sales or catalog sales. We treat all PayPal transactions as card not present transactions, so we report all of your transactions as “card not present” transactions in Box 1b. The amounts reported in Box 1b do not mean that income that is reported twice.

How do I get a reconciliation report from PayPal?

To get a reconciliation report that shows all of the transactions PayPal has included in the dollar amount reflected on your Form 1099-K you should refer to the Help Center article located here for instructions on how to find an annual financial summary.

Why did I receive more than one Form 1099-K from PayPal?

PayPal and all other payment processors are required to report sales and transaction volume to the IRS by tax ID number. We will prepare Form 1099-K at the PayPal account level. If you have multiple accounts, that either individually or when combined, cross the IRS thresholds, you will receive a Form 1099-K for each account associated with your tax ID number.

What if I have questions about my Form 1099-K?

If you have questions about your Form 1099-K, please review all of the information on this site. PayPal is not qualified to give you specific tax guidance and asks that you contact a tax professional.

What should I do if my Name or tax ID number is incorrect on my Form 1099-K?

Please call PayPal using the telephone number provided on your Form 1099-K for assistance.

What should I do if I feel the dollar amount shown on my Form 1099-K is incorrect?

If you feel the dollar amount on your Form 1099-K is incorrect, you should refer to the Help Center article here for instructions on how to find an annual financial summary.

If the dollar amount seems high, note that:

  • Shipping charges and sales tax are included in the total.
  • Refunds and returns have NOT been excluded from the total.

If the dollar amount seems low, note that:

  • It only includes gross sales for good or services that were processed through your PayPal account.
  • Transactions processed after December 31st are NOT included on the prior year’s Form 1099-K, but will be reflected in the next year’s Form 1099-K.
  • We only report your PayPal activity. Other payment methods are not included.

If you feel a correction is needed to your Form 1099-K, contact us for assistance using the telephone number provided on your Form 1099-K.

Do I have to report the amounts from Form 1099-K on my tax return?

Please consult your tax advisor or contact the IRS for additional information on how the amounts reported on Form 1099-K should be reflected on your tax returns. PayPal cannot provide specific guidance on the tax implications of Form 1099-K reporting.

Will PayPal help me with my tax return?

While we're committed to helping our customers, PayPal does not provide you specific tax guidance. Please contact a tax professional. Additionally, please see below resources that IRS has put together to assist taxpayers on Form 1099-K reporting implications:

https://www.irs.gov/businesses/understanding-your-1099-k

https://www.irs.gov/uac/general-faqs-on-new-payment-card-reporting-requirements

https://www.irs.gov/tax-professionals/third-party-reporting-information-center

Will PayPal provide any information to any State tax authorities?

Yes. We will provide copies of Form 1099-K to certain states as required. In addition, states generally have the ability to obtain data from the IRS.

What if I have questions that were not answered here?

We're committed to helping our customers. If we haven't answered your question here, call us at 1-877-569-1129.

If you’ve recently received a notice to update your PayPal account(s) information, please download the following PDF guide and refer to the FAQ’s.

  • Updating your PayPal account(s) information
  • PDF Guide
  • Instructions on how to update your PayPal account