(Update) Why I Am Giving PayPal The Deuces In 2022 & Beyond…Why You Should Too

Do not ignore the 1099k even if it is all nontaxable. In my case, it triggered an audit. I had all the documentation and supplied it timely to IRS audit but it was a horrible situation. 1. They never officially recorded in my first correspondence. 2. Even after receiving my documentation the 2nd time, they did not clear the issue. It was terrible trying to get a hold of the IRS to talk through the issue, and the people I talked to weren’t actually the ones deciding my case. Useless. 3. It eventually took so long that I had to file a tax court case. You have to pay fees to file. Then you have to supply reasoning and support again. Thankfully the IRS lawyer had some brains and cleared the issue before I had to appear in court.
Report the 1099k amount. And report another line item that reduces it by whatever is nontaxable. Do not simply leave it off your return, otherwise be prepared to have to explain it later…and even then, it can be a headache beyond your worst nightmare. It doesn’t matter how airtight your documentation is, it can still end up in tax court. IRS was heavily understaffed during covid. And now there will be an exhorbitant amount of 1099k’s going out.

Why would you get a 1099k for payouts like this? The requirement is for payments received where a buyer paid you using the Goods & Services option. So if a friend sent me $700 I would not receive a 1099. Are sports betting sights sending these payouts as Goods & Services?

I talked to an accountancy professor that runs my university’s VITA program last year. I did get a 1099K from PayPal being in Illinois. She told me IRS doesn’t really use 1099K for anything since it can’t be properly matched anyway. It’s more of a consumer tool to help file taxes properly. The person filing the taxes should be entering the real amounts from their own books. IRS knows that third party processors are just a tool businesses can use. She said I could ignore my 1099K since all incoming monies from PayPal were rebates on products purchased. In the unlikely event I am audited, I just need to provide a statement for those numbers. In all likelihood IRS and ILDOR are busier dealing with bigger fish than me anyway. I still avoid PayPal where I can now that I know I’m in an annoying state. I will note I got a completely different answer from accountants at another VITA site but she sounded up to date. I really think most accountants aren’t going to know how to handle a non-business type situation with cash back or rebates. Most tax programs will probably default to reporting as income and maybe that’s the goal here. Most people just want to get their taxes done ASAP and unless their tax bill looks ridiculously wrong, they will just pay tax on monies that shouldn’t be taxed. It’s going to be a terrible tax season next year.

eBay now provides payment to sellers directly, without the PayPal intermediary. Will eBay also be issuing 1099s?

Mark — (I’m not a tax professional either! This isn’t advice!) You might want to talk to your tax professional before you work to pull together a bunch of paperwork you might not actually need (or won’t actually need unless the IRS follows-up). Since the 1099-K is an informational form and not one that goes on your tax return directly, the advice I’ve seen from states like Massachusetts is that you shouldn’t do anything with regard to non-taxable income included on a 1099-K, just listing the taxable income as you always would. (Mass has an interesting page on this.) Gets more complicated when business income is involved, and obviously separating out taxable and non-taxable categories can be messy, but it may not be as bad as you think unless there is follow-up.

As someone who has dealt with this in one of the states that already has the lower requirements, I agree with you completely that this is going to be an *enormous* mess next year. I really worry that the tax software just won’t be capable of helping folks reach the right way of handling this form and a bunch of people will end up listing ebay garage sale items as capital assets or paying self employment tax etc. in cases when that isn’t appropriate for their situation (in fact, that’s already the case right now, its just only those few states have to deal with it).

Thank a tax and spend Democrat for your troubles.

What I find most interesting about all this that the tax accounting for this is not very hard and it will end up being 3 lines on 1040C for 99% of people who might get a 1099. The $20K rule was much too porous. Set up a Paypal and Venmo payment app in two player mode and all of a sudden someone could be making $80K/year without paying any taxes, I pay taxes on every penny of my income. Why shouldn’t other people? The biggest bonuses from Swagbucks tend to be in the form of things that would be getting a 1099INT if they were paid out by the bank/investment corp that is offering it anyways. I can see paypal/venmo peeling off another app that captures the non-income transfers. In reality the $600 rule is much ado about nothing to a huge majority of people.

I totally get where you are coming from. But it’s a little bit of shooting the messenger, isn’t it? I’m sure paypal is fully against this and fought tooth and nail for a decade to thwart these reporting requirements. After all, we were always under an obligation to report our full income, regardless of whether we receive a 1099 or not.

This is what we get for voting to “tax the rich” because this is what that turns into in real life. A whole bunch of new regulations or laws trying to find all of the imagined hidden pockets of income and wealth to tax. But the regulations that would snag the true wealth never make it all the way to being enacted. They get dropped somewhere along the way as the campaign donations and lobbyist money fills the re-election campaign funds. And the politicians who promised to tax the rich will hope that we all forget that they didn’t achieve their goal and vote for them again next time when they trot out the same exact pitch. But by then, we will need to issue 1099’s ourselves to our babysitters and the water fountains we throw dimes into also.

Zelle is your friend in some circumstances as they are NOT, according to their own website, a payment processor and will NOT, again according to their website, going to be issuing 1099s. Yes, a lot of what you describe won’t work, but some will, like repayments from friends, roommates sharing rent, etc.