Paypal’s Tax Reporting Changes to the IRS

If you have a Paypal account, you may have been asked for your Tax ID number recently.

This is the result of a bill President Bush signed into law known as The Housing Assistance Tax Act of 2008, although I have no idea how this relates to housing! Regardless,  in the middle of the bill is a new requirement for credit card merchants to report certain payments to the IRS. The law was passed in 2008 but the new reporting requirement didn’t kick in until now, and forms 1099-K will be issued in early 2012.

The goal of the new regulations is to catch income that is going unreported to the IRS. Paypal (Amazon, and all credit card merchants) will now report to the IRS money received into your paypal account if you receive in one calendar year:

Minimum of 200 payments or transactions totaling at least $20,000

Both of these conditions must be met.

If so, you will receive a 1099K that will need to be included in your tax returns.

For the most part, it will make my life easier to have it all calculated for me. However, it will report gross payments, so be sure the fees are listed as a business expense.

Will post updates as I find them.

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