Paypal Reporting to the IRS
For those of you that receive payments via Paypal for whatever your business might be, you may be interested to know that Paypal will now be required to report payments made to you to the IRS. The Housing and Economic Recovery Act signed into law in 2008 is the culprit of the new requirement. The implication of course is that your online selling will be scrutinized and the IRS will have a much better mechanism to validate tax liability.
There are a couple of conditions that cause the reporting… You need to receive payments of more than $20,000 AND you need to have more than 200 payments made to you. I know for me that the AND portion of this bill becomes pretty significant. Both conditions must be met before there is any reporting by Paypal. In the original bill these reporting requirements were much smaller than those that were finally signed into law.
So when does it all happen? January 2012, Paypal will need to send 1099s to all of their customers that meet the requirements.
You can see a full article by Ken Swab on the Paypal blog.
So this brings up a few interesting questions…
- At what point is an eBay sale considered taxable income? (Do you report garage sale income as taxable income?)
- What other legislation is out there that might have an Internet sales reporting clause?
- What are the logistics of tax reporting for local jurisdictions and the Internet sale? (ie… should a seller in Washington state be required to collect New Jersey sales taxes for products that are being shipped to a New Jersey locale?
