Pay Pal policy changes

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rherrell

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Just a heads up to anyone accepting payments through Pay Pal.

Effective 1-1-22 anyone receiving more than $600 for PURCHASES in the calendar year will be sent a 1099K tax form and be required to pay taxes on it. To put this into perspective, the old tax law required anyone who made more than $20,000 or 200 purchases to pay taxes on it.

The new law does NOT include personal payments made to "Friends and Family".

This is not a Pay Pal decision, you can thank the IRS and our esteemed "elected" officials for this one.

 
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jeff

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This is an important topic and should be discussed, but let's avoid injecting political commentary.

Also, this is a complicated subject, so if you present something as fact, posting links from authoritative sources is a good idea.
 

TonyL

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This is an important topic and should be discussed, but let's avoid injecting political commentary.

Also, this is a complicated subject, so if you present something as fact, posting links from authoritative sources is a good idea.
Feel free to delete my comment. My apologies.
 

jttheclockman

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A couple things come to mind. Insurance for one. With F&F you have no insurance from PP is this correct?? This law will encompass all outlets that you sell at such as FB, Etsy, Ebay, Craft shows, and anywhere you take PayPal?? I see Venmo is included. Are there other third party money transaction possibilities that can be used instead of these?? Or are they all effected. The IRS has been downsized to an extent with less workers ,how are they going to police this or is this going to become Paypal's responsibility to report only. ??

In the long run though anyone having a fairly lucrative business that uses PP should really have no problem with this because they have to report income anyway. It will be the people selling a few blanks or items that are basically not a business. I believe they are trying to close that loophole.

I watched the video linked here and believe some misinformation is in there. Unless I am reading things wrong and this does need to be discussed. The guy mentions things like garage sales and things. I think this will become a total mess come tax time especially if you do your own tax returns. If you do garage sales things I believe from reading the law that was again provided here they would exclude that kind of sales. Now this may require more paper work on your behalf



Q: 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 banks and 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 that may be included on the form that are generally excluded from gross income and therefore are not subject to income tax. This includes:

  • Amounts from selling personal items at a loss
  • Amounts sent as reimbursement
  • Amounts sent as a gift
So, for example, if you purchased a couch for $1200 and sold it for $800, this amount would not be subject to income tax.

We encourage customers to speak with a tax professional when reviewing their 1099-Ks to determine whether specific amounts are classified as taxable income.
 
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rherrell

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A couple things come to mind. Insurance for one. With F&F you have no insurance from PP is this correct?? This law will encompass all outlets that you sell at such as FB, Etsy, Ebay, Craft shows, and anywhere you take PayPal?? I see Venmo is included. Are there other third party money transaction possibilities that can be used instead of these?? Or are they all effected. The IRS has been downsized to an extent with less workers ,how are they going to police this or is this going to become Paypal's responsibility to report only. ??

In the long run though anyone having a fairly lucrative business that uses PP should really have no problem with this because they have to report income anyway. It will be the people selling a few blanks or items that are basically not a business. I believe they are trying to close that loophole.
All third party payment providers are affected.

I average about $8,000 per year selling my products, if I had to pay a 15% tax on that amount it would be $1,200 and that's a huge hit for me. The money I make goes into shop overhead which is quite substantial for a 900 sq. ft. climate controlled machine shop. I do this as a hobby/service, Uncle Sam may call it a business but I don't. My only customers are right here at the IAP.
 

BURLMAN

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I usually gross $20K or more in sales per annum, all of which I report as income. For those of us who do that, I don’t see how this policy will affect us. I’ll just have another 1099 to show to my tax accountant. Am I mistaken here?
 

jttheclockman

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All third party payment providers are affected.

I average about $8,000 per year selling my products, if I had to pay a 15% tax on that amount it would be $1,200 and that's a huge hit for me. The money I make goes into shop overhead which is quite substantial for a 900 sq. ft. climate controlled machine shop. I do this as a hobby/service, Uncle Sam may call it a business but I don't. My only customers are right here at the IAP.
Rick I believe that you and many of us will have to talk to our accountants because they are not breaking down a difference from business to hobby/business. The best time will be when you file this years tax returns and make the accountant aware if they are not already and discuss the possibilities. Are the same rules applying. As I pointed out already there are exceptions to this such as garage sales. But if you are already in the system as a hobby/business then probably that is not an avenue you can take. I am sure that smarter people than me will figure out loopholes as they always do. More info will be needed and I am sure more will now start appearing that the law took effect. Hopefully this thread will stay open if we do not get political and any info can be added here. This can and am sure will effect many, not only here.
 

Jay

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"The American Rescue Plan Act of 2021, also called the COVID-19 Stimulus Package or American Rescue Plan, Pub L. No. 117-2 (March 11, 2021), is a US$1.9 trillion economic stimulus bill passed by the 117th United States Congress and signed into law by President Joe Biden on March 11, 2021, to speed up the country's recovery from the economic and health effects of the COVID-19 pandemic and the ongoing recession." (Not my words)

The PayPal et al. provisions take affect March 2022.
 

rherrell

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Rick I believe that you and many of us will have to talk to our accountants because they are not breaking down a difference from business to hobby/business. The best time will be when you file this years tax returns and make the accountant aware if they are not already and discuss the possibilities. Are the same rules applying. As I pointed out already there are exceptions to this such as garage sales. But if you are already in the system as a hobby/business then probably that is not an avenue you can take. I am sure that smarter people than me will figure out loopholes as they always do. More info will be needed and I am sure more will now start appearing that the law took effect. Hopefully this thread will stay open if we do not get political and any info can be added here. This can and am sure will effect many, not only here.
I don't pay taxes, I've been on permanent disability since a work accident in 2004. I need crutches to walk and I can't move my left arm above my chest. I turn 70 this year and my Social Security is the only income I have.
I will no longer be accepting payments from PP as "purchases", only "Friends and Family" transactions. I also won't be using PP for shipping my orders, I just got a "Pirate Ship" account, it's a shipping service that looks real good so far, we'll see how it goes.
 

jttheclockman

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I don't pay taxes, I've been on permanent disability since a work accident in 2004. I need crutches to walk and I can't move my left arm above my chest. I turn 70 this year and my Social Security is the only income I have.
I will no longer be accepting payments from PP as "purchases", only "Friends and Family" transactions. I also won't be using PP for shipping my orders, I just got a "Pirate Ship" account, it's a shipping service that looks real good so far, we'll see how it goes.
Good luck Rick and hope things work out for you and I am sure there will be many effected also. You are not alone.
 

TonyL

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I usually gross $20K or more in sales per annum, all of which I report as income. For those of us who do that, I don’t see how this policy will affect us. I’ll just have another 1099 to show to my tax accountant. Am I mistaken here?
I am not for "more" govt/IRS, but you are right, in your case nothing changes. If one was not reporting their income, then the IRS will have a copy of the 1099k provided by PP and the like and the IRS will automatically identify an income discrepancy. To avoid paying tax on all, make sure expense receipts are saved.

I am only speculating here, but I would think Congress (who writes the tax code, not the IRS) has anticipated sellers moving to the F&F alternative and winds-up requiring all funds transfers to be reported.

Lastly, because one pays no tax does not necessarily mean that a return doesn't have to be filed. There are very few cases where are return is not required. The link below may help.

IRS: Do I Need To File A Return
 

JimB

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This might also be a concern for anyone running a Group Buy and receiving reimbursement through PP. There may not be any actual income involved but you may need to proof of purchase to show you are only getting reimbursed.
 

jeff

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This might also be a concern for anyone running a Group Buy and receiving reimbursement through PP. There may not be any actual income involved but you may need to proof of purchase to show you are only getting reimbursed.

PayPal Friends and Family transactions are not included in 1099-K reporting.

 

rixstix

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Please be discrete using F&F for G&S transactions. Buried deep in the ToS is a section where if PP catches a someone using F&F to avoid paying their transaction fee, PP reserves the right to retroactively capture their fee from your account for all F&F transactions that they feel were actually G&S and/or freeze/terminate your account.
 

jttheclockman

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What is friends and family payment?
A friends / family (or gift payment) is intended as a transfer of funds from family or friends to one another. For this reason, there is no processing fee when payment is made with bank or PayPal balance. However as it is a "gift" payment, there is also no Buyer protection as no goods or services should have been exchanged.
 

zig613

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Please be discrete using F&F for G&S transactions. Buried deep in the ToS is a section where if PP catches a someone using F&F to avoid paying their transaction fee, PP reserves the right to retroactively capture their fee from your account for all F&F transactions that they feel were actually G&S and/or freeze/terminate your account.
Also keep in mind that if it is an international transaction (e.g., F&F transfer from Canada to the US) then the receiver will have to pay a PP fee on the transaction.
 
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