Stimulus Bill Requires Payment Processors (like Paypal) To Report Earnings of $600+ on 1099-K Tax Form
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A major under-reported facet of the massive $1.9 stimulus bill (round 3) is that it strengthens requirements on payment processors like Paypal to report on income received through their platforms:
Beginning on January 1, 2022, third party payment processors will have to report any income for goods or services exceeding $600 during the calendar year on a form 1099-K. Previously, processors only had to report this income if it was BOTH: (a) $20,000 or more during the calendar year, and (b) 200 transactions or more. This allowed most smaller stuff (like Topcashback, Ebates, PFS, Swagbucks payments) to go unreported.
(A few select states such as Illinois already have stricter laws requiring reporting at the $600 threshold, but most areas are currently governed by the federal requirements. Those are changing in 2022.)
This change concerns me for two reasons:
I’m worried that companies may not always know what is ‘goods and services’ and what is not, leading to misclassifications. E.g. portal earnings are likely rebates and not considered ‘goods or services’, but I’m not confident that Paypal will classify that correctly (as has been the case in the past when even P2P payments were somehow included in the 1099).
Even if everything is correct and it’s income that I’m reporting anyway, it still adds a level of complication to everything, e.g. making sure the tax form is directed to the correct entity (personal or business), and having to burden your accountant with multiple small tax forms from a bunch of random companies.Whether or not you get a tax form does not change what you actually owe, e.g. if you don’t get a tax form you still have to report income earned, and if you do get a tax form you can still reduce the earnings to what was actually taxable business profit. But it could still create a hassle with all this. The primary purpose of this stricter law seems to be for gig workers like Uber/Lyft drivers and the like, but it seems like the rest of us will get snared by this as well.
Interestingly, if you earn $500 from Topcashback and $500 from Ebates, and have them both paid via Paypal, then you might get a 1099-K from Paypal, but if you get paid from Topcashback and Ebates directly to your bank, then you should not get a tax form.
Some tips from someone who was affected by this change in his own state with the same amount requirement ($600 in VA) and will be making said changes for 2021:
Change your Rakuten/eBates payout to be by check to avoid it being reported on the 1099-K (it will if you get paid by Paypal). Yeah it’ll take longer than Paypal, but checks won’t show up on your 1099-K.
For Swagbucks/MyPoints, I know getting money back by PayPal makes it easy, but you should probably opt for branded gift cards or VISA prepaid cards. PayPal reimbursements will show up on the 1099-K
Make sure your friends pay you using the FRIENDS option. If they accidentally pay you using the business option you pay a fee and it shows up on your 1099-K. Unfortunately you can’t really avoid this if someone is paying you international, but you can do your best. Preferably ask for reimbursements through other apps such as Venmo or CashApp.
If you make a deal with the devil and wait to ahem receive products from a certain country for ahem incentives to produce reviews on a ahem certain e-retailer website, opt for the Amazon gift card payout. Paypal payouts will show up on the 1099-K.
For eBay sales, start NOW breaking down every transaction in an excel document. For each transaction list the money you received including tax, the taxes eBay took back, the shipping you paid, calculate the fees including paypal (12% eBay fee for CD’s/Audio, 10% for everything else, 2.9% Paypal fee, and $0.30/transaction paypal fee), and also keep track of the cost of goods. That way at the end of the year you dont have to go back 12 months of transactions one by one to figure it out. All you have to do is sum up a single columns and be done with it in mere seconds. When it comes time to do your Schedule C for the 1099-K side business you can easily input the deductions for taxes, shipping, cost of goods, and fees.
Sadly, with Upside gas, there isn’t much I can do. They only have PayPal as a mode of payout, so I just have to make sure I notate it properly when reconciling all my transactions.
Thanks and credit DoC and TDD/Doc for the information.
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@MrVietnam From a tax law perspective, I’m not really sure the payments from Ebates/TCB etc and various rebates that pay you via Paypal (think some of the beer rebates that are posted here) fall under ‘payment of goods/services’. Rebates are not considered income as you’ve already paid for the good or service you are getting this money on.
I realize you covered it above, but I’d sure hope PAYPAL has a way of flagging payment sources as other versus paying you for goods and services. It would be a nightmare trying to get that straightened out if a $500 Ebates payments caused you to get one of these forms along with your smaller $15 rebate deposits from rebates and the like.
By the way, I think EBAY stopped using paypal and deposits funds from sales directly into your bank account now if I’m not mistaken.
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@mistercheap said in Stimulus Bill Requires Payment Processors (like Paypal) To Report Earnings of $600+ on 1099-K Tax Form:
By the way, I think EBAY stopped using paypal and deposits funds from sales directly into your bank account now if I’m not mistaken.
Where did you read this? I’d like to know more about it. Buyers pay with PayPal so the money from them goes to ones PayPal account. How would eBay send money directly to one’s bank account when the buyer paid with PayPal?
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@mistercheap said in Stimulus Bill Requires Payment Processors (like Paypal) To Report Earnings of $600+ on 1099-K Tax Form:
@MrVietnam From a tax law perspective, I’m not really sure the payments from Ebates/TCB etc and various rebates that pay you via Paypal (think some of the beer rebates that are posted here) fall under ‘payment of goods/services’. Rebates are not considered income as you’ve already paid for the good or service you are getting this money on.
I realize you covered it above, but I’d sure hope PAYPAL has a way of flagging payment sources as other versus paying you for goods and services. It would be a nightmare trying to get that straightened out if a $500 Ebates payments caused you to get one of these forms along with your smaller $15 rebate deposits from rebates and the like.
By the way, I think EBAY stopped using paypal and deposits funds from sales directly into your bank account now if I’m not mistaken.
PayPal most likely cannot differentiate the transaction. So any redemption above $600 through PayPal probably will trigger it regardless of whether it is taxable.
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@my4mainecoons said in Stimulus Bill Requires Payment Processors (like Paypal) To Report Earnings of $600+ on 1099-K Tax Form:
@mistercheap said in Stimulus Bill Requires Payment Processors (like Paypal) To Report Earnings of $600+ on 1099-K Tax Form:
By the way, I think EBAY stopped using paypal and deposits funds from sales directly into your bank account now if I’m not mistaken.
Where did you read this? I’d like to know more about it. Buyers pay with PayPal so the money from them goes to ones PayPal account. How would eBay send money directly to one’s bank account when the buyer paid with PayPal?
I’ve been getting paid directly through ebay by direct deposit for the last several months
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@my4mainecoons said in Stimulus Bill Requires Payment Processors (like Paypal) To Report Earnings of $600+ on 1099-K Tax Form:
@mistercheap said in Stimulus Bill Requires Payment Processors (like Paypal) To Report Earnings of $600+ on 1099-K Tax Form:
By the way, I think EBAY stopped using paypal and deposits funds from sales directly into your bank account now if I’m not mistaken.
Where did you read this? I’d like to know more about it. Buyers pay with PayPal so the money from them goes to ones PayPal account. How would eBay send money directly to one’s bank account when the buyer paid with PayPal?
https://pages.ebay.com/seller-center/service-and-payments/managed-payments-on-ebay.html
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Swagbucks are earned via multiple different types of offers, including manufacturer coupons, cash back for online/in-store shopping, surveys, rebates, etc. So if you cash out to PayPal it will now ALL be counted as income, including non-income sources. Keeping an itemized list of thousands of small transactions for tax filing isn’t worth it to me. I’ll just stop cashing out SB for PayPal cash.
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Swagbucks will request you to fill out a W-9 if you redeem more than $600 in gift cards per year.
https://help.swagbucks.com/hc/en-us/articles/360049700471-Taxes
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Might as well report it even if you’re under the $600 limit. Most people are taking the standard deduction these days anyway. It’s an even better idea to break down your ebay income with expenses, as mentioned for a side business for ebay.
Unless you have a main job with taxes withheld, and any additional income from swagbucks or ebay would cause you to not get a bigger refund or if you have to mess with your withholdings.
Keeping track of ebay income is relatively simple. Spreadsheets are free from Google Docs (personally, I pay for and use Office 365, but whatever floats your boat.)
