Buried in the new stimulus bill is a provision that will change how PayPal and other third party networks will issue tax forms to you – and the amount has dropped significantly.
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:
SEC. 9674. MODIFICATION OF EXCEPTIONS FOR REPORTING OF THIRD PARTY NETWORK TRANSACTIONS.
(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”.
(c) Effective Date.—
(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.
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