Sponsored Link

A 1099-K Notification from PayPal Alerts Seller to Unanticipated Problem

PayPal
A 1099K Notification from PayPal Alerts Seller to Potential Problem

In what seemed like a routine email titled, “View updates to your PayPal account,” PayPal informed an online seller he had passed the threshold for reporting payments to the IRS, notifying him that according to its records, he had received $600+ in goods and services payments this year “which the IRS considers taxable income.”

While the rules are new for tax-year 2022, by now they shouldn’t come as a surprise to readers. However, the email notification led to the realization of a problem the seller didn’t know he had, one that some other sellers may also face:

“My first 1099K from PayPal will cause me a huge problem since I have been receiving income from 2 businesses thru my PayPal account. I will need 2 1099K forms and I don’t know how to get PayPal to do that. Any ideas from you and your readers?”

The seller was also under the impression that payment processors were required to generate a 1099K only when a seller reached the $600 threshold and also made make at least 200 sales transactions during the year. However, that’s not the case – someone could sell a single item for $601, and the payment processor would have to issue a 1099-K.

The IRS explains on its website that processors will send Form 1099-K to those who received payments for returns for calendar years after 2021 when the following applies:

  • Gross payments for goods or services that exceed $600, AND
  • Any number of transactions

Here’s the text of the email PayPal sent the seller:

Updates to your PayPal Account

Hi (name redacted),
We want to make you aware of recent changes that are relevant for your PayPal account. Your updates are summarized below.

Capability & Feature Updates

  • Automatic Transfers: You can now schedule automatic transfers from your PayPal balance to a bank account on a daily, weekly, bi-weekly or monthly basis. Choose to keep a pre-determined amount in your PayPal balance to use for refunds, purchases, or other business needs. Log in to your PayPal account to enable auto transfer.
  • You’ve received $600+ in goods and services payments this year which the IRS considers taxable income. PayPal will make it easy for you by tracking your commercial income and sending you a 1099-K early next year. PayPal supports businesses by including Purchase Protection on eligible purchases, providing tools and reporting to help businesses run smoothly, and more. Learn more.

Our ongoing focus is to help your business thrive. For additional resources, check out the links below.

Thanks for being a valued customer,
The PayPal Team

What do you do if you’ve been collecting payments under a single PayPal account but for two different business entities? (The same applies to any payment processor that is forced to issue a 1099-K on your behalf.) Share your thoughts below.

Ina Steiner on EmailIna Steiner on LinkedinIna Steiner on Twitter
Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). She is a member of the Online News Association (Sep 2005 - present) and Investigative Reporters and Editors (Mar 2006 - present). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.

Written by 

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). She is a member of the Online News Association (Sep 2005 - present) and Investigative Reporters and Editors (Mar 2006 - present). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.

4 thoughts on “A 1099-K Notification from PayPal Alerts Seller to Unanticipated Problem”

  1. While I am sympathetic to the reader on this issue, the business owner really needs to have two PayPal accounts one for each business entity. This is no different than comingling funds in a business bank account which also the IRS frowns upon. This is not really a PayPal problem but a business owner problem.

  2. When you file I would just have the business write off some kind of expense to the other business and the other business can now claim that money as income. Looks like the writer is dealing with small $, I don’t think the IRS will be scrutinizing his businesses..

  3. Don’t count on it. I know poor people the IRS has went after for not that much money (under $500). The Dems need all the tax money they can get to spend on their agendas! This $600 threshold was the start and now hiring 87k more IRS agents will accomplish their goal.

  4. Since I first began using PP it’s been disheartening because there doesn’t seem to be a way to distinguish between payments or income. All PP seems to know is “money in” and “money out.” They lump personal and business transactions into one single “account.” To be absolutely safe I would agree with DTSM, it’s better to have two separate accounts. That of course depends on whether PP will allow one individual to do so.

    The only other thought I can think of is if there would be some way to code each transaction to apply to Business A or Business B, so that you could sort the PP total financial report into the correct business, once you got the information into a spreadsheet. I do not know whether PP will generate separate financial reports for different emails (if the businesses have emails that are different from each other and are both registered with PP). I haven’t ever tried, but that might be a possibility.

Comments are closed.