If you use PayPal to receive payment for goods and/or services (like eBay transactions, Facebook marketplace, etc) or any similar platform, you will find a new change coming, courtesy of the just-passed stimulus bill.
New Reporting Requirement for PayPal and Other Platforms
Note that I am not a tax or financial professional and am not providing advice for financial or tax purposes. If you have questions about this, check with your accountant or tax professional.
What is the Reporting Requirement for Third Party Platforms?
This will apply to all third-party payment platforms but PayPal is the one that likely affects many of us the most. This will also mean for platforms like Etsy, etc.
The current IRS reporting law (here is a link that describes the previous language) for these platforms is that they only had to provide a 1099-K tax form to users if they processed more than $20,000 and 200 transactions in a year. So, if you sold $40,000 worth of stuff on eBay in one year but only in 150 transactions total (as processed by PayPal), you would not receive a tax form from PayPal (except in a couple of states).
By law, you are still supposed to claim any profits on these sales but the payments themselves were not reported to the IRS. This made things easy if you, like me, would occasionally find some deal on something and flip it at the same price you paid, after all fees were collected. Many may find that strange but it is a nice way to get some easy spending done – and sometimes make a little bit extra (which could easily be reported in returns).
The New Reporting Requirement for Third Party Platforms
However, (and thanks to George from Travelbloggerbuzz for the first heads up on this), the newly passed American Rescue Plan, the $1.9 trillion stimulus package, included a new provision that would change all of that going forward. Here is the language from the bill as it was passed:
(a) In General.—Section 6050W(e) of the Internal Revenue Code of 1986 is amended to read as follows:
“(e) De Minimis Exception For Third Party Settlement Organizations.—A third party settlement organization shall not be required to report any information under subsection (a) with respect to third party network transactions of any participating payee if the amount which would otherwise be reported under subsection (a)(2) with respect to such transactions does not exceed $600.”.
(b) Clarification That Reporting Is Not Required On Transactions Which Are Not For Goods Or Services.—Section 6050W(c)(3) of such Code is amended by inserting “described in subsection (d)(3)(A)(iii)” after “any transaction”.
(1) IN GENERAL.—The amendment made by subsection (a) shall apply to returns for calendar years beginning after December 31, 2021.
(2) CLARIFICATION.—The amendment made by subsection (b) shall apply to transactions after the date of the enactment of this Act.
What Does This Mean?
So, what exactly does this mean? It means that, for returns beginning next year, third party network platforms like PayPal will be issuing forms and reporting to the IRS for all accounts if the transactions exceed $600 for that year. Fortunately, they did make the clarification that this will only apply to things that are categorized as “Goods or Services” as opposed the “Friends and Family” option with PayPal.
Why will this matter? It will likely affect a lot of people who had just listed some old stuff around their house on eBay that they were no longer using as getting over $600 will now trigger a 1099-K form. Also, it means that if use any third party payment network for anything, it will now be automatically reported if it is over $600 meaning you had better make sure you have all your receipts to show your deductions against that sale price!
This little addition to the stimulus bill will likely bring in a ton of tax money that was not being reported on before this. But, it will catch many people flatfooted if they were not aware of this and they get a tax form for clearing out old things from their house or selling an old computer to fund a new one, etc.
As a reminder, this is set to kick in starting January 1, 2022.
Us peons just can’t catch a tax break while the 1% and major corps get them yearly now
That is completely off! None of the benefits of the law just passed go to the 1% and major corps. Actually, it is shocking that regular folks will benefit SO much!
And thanks for the backlinks.
Who do you think the government is run by, smart guy? Princeton already proved we live in an oligarchy 8 years ago with an extremely comprehensive and telling study.
“This little addition to the stimulus bill will likely bring in a ton of tax money that was not being reported on before this,” that’s something we have to see LOL. That makes small sales of used goods online just more burdensome and maybe a lot of hobby and private seller just give up on eBay, PayPal and sell on other platforms like Facebook Marketplace or Nextdoor where the exchange of money happens in person. For me, it looks like a nice new bill to squeeze out even more of main street. Yes, you get a fat stimulus bill check but you will pay it back through new taxes like this one many times over. It’s as bad as those payday loans with those exorbitantly high interest rates. The status quo looks so much better now…
PayPal are a bunch of thieves, that take your money and hide. When you try to put money on your card with a receipt and all. It won’t go on your card, instead they will tell you, your balance is zero and when you try to inform them it is a automotive voice and service that leads you to a dead end and no resolution for you lost wages. They are thieves that do this everyday to ppl that cannot take them to court. In fact the so-called elite government maybe in on it.
PayPal are a bunch of thieves, that take your money and hide. When you try to put money on your card with a receipt and all. It won’t go on your card, instead they will tell you, your balance is zero and when you try to inform them it is a automotive voice and service that leads you to a dead end and no resolution for you lost wages. They are thieves that do this everyday to ppl that cannot take them to court. In fact the so-called elite government maybe in on it.
I’m still confused on exactly when this takes effect. Will this affect 2022 tax returns or 2030?
Correct, it will be for 2022 returns.
I’m sorry does that mean what I file in 2022 will be affect? Or do you mean what I made in 2022 and file in 2030? Sorry for not quite understanding.
Correct, the third party platforms will issue you a 1099-K, starting January 1, 2022, if you receive more than $600 in a calendar year for goods and services. So, if you were to receive payments through PayPal as friends and family, those should not be included.
Since ebay now handles their own payments through Managed Payments (MP) where the funds go directly into my bank account is that considered third party? Thinking it’s not and not a part of the stimulus rules.
You also state this kicks in January 1st 2022. Does this mean anything taken in through paypal in 2021 will not generate a 1099-K as long as you adhere to the current rules?
Same questions
Good questions – I am honestly not sure about eBay’s managed payments yet if that will count or not. I know that Etsy will count as that is a third-party platform and I guess eBay is also third-party since they are the middleman but I guess we will have to see what eBay has to say about it.
As for the other question, according to the bill, it is for returns in year 2022 and on (how I read the bill) so it should not apply for this year. But, I am not sure if PayPal is going to just issue them anyway to get ahead of it. I hope not but we will have to wait to see what PayPal says as well.
What happens with rebates that are paid through PayPal?
This would likely be included as well if all the amounts go over $600 in non-friend/family transactions but can be claimed as rebates on the tax return at the end of the year.
The only reason I know about this whole situation is something I read on eBay. I’m not sure about the managed payments, but I suspect there is something going on with it (I hate it). And the new seller hub is impossible to navigate so I can’t get back to where I saw the article. I’m going to keep trying to find it. And if eBay reports, will it be the gross, or the net? So confused.
Sorry for asking the same question again, but I’m still not completely 100% clear. Which of the following is right?
1) The new reporting method and 1099 will be issued 2022, for goods sold in 2021.
2) The new reporting method and 1099 will be issued 2023, for goods sold in 2022.
Thanks for the information and article.