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

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Issued A PayPal 1099 K

Issued A PayPal 1099 K

I received an email this morning from Swagbucks saying the PayPal payment I requested weeks ago is being delayed because of issues with the network. Boy did that simple email got my blood boiling all over again. See, last week I was issued a PayPal 1099-K for a whole bunch of stuff that was not 1099-K worthy.  Things like Swagbucks payouts, cash back portals and rebate shopping programs. Things that are NOT business income. They are things I now need to get paperwork on and prove were not actual income. I need to prove were instead a rebate on spending etc. which is NOT taxable. What a mess! I feel like we are saddled with the burden of guilt and need to prove our innocence in this scenario.

I should take this time to say I am not a tax professional and this is not tax advice. (Not that I am giving any actual advice here anyway).

PayPal Sends Out Corrected 1099 K

Update 4/12/22: I wanted to give an update on this post about the 1099 K I received from PayPal this year for items that were not business income. They just sent out a corrected form to me, as well as some others I know, that corrected the form to $0. I wish it had come a lot sooner since my accountant had already wrapped stuff up and had to go back and adjust but it was good to see them make it right.

Why I Am Moving On From PayPal & Venmo

Once I get the required paperwork together I imagine a PayPal 1099-K is not a huge deal to most tax professionals. For someone that does their own taxes using software like Turbo Tax etc. that could be a different story though. And it doesn’t account for the fact that I now need to gather a whole bunch of paperwork to prove this wasn’t income and that I don’t need to pay taxes on it. Will showing that a whole bunch of “income” is not actually income lead to a red flag and an automatic audit? Only time will tell there.

Because of all of this I am avoiding PayPal and Venmo like the plague going forward. The juice isn’t worth the squeeze here. Sure you get your money quicker with PayPal, but is that worth the headache at tax time? I could take Amazon gift cards from Swagbucks instead, which is like cash to me. I’ll take a paper check where it is possible for some of the other options and deal with a longer payout time. If a bank transfer is an option I’ll do that instead too. Any route that avoids PayPal and Venmo is the route I will take. Not because I want to hide anything, but because I don’t need more paperwork for stuff that shouldn’t require it.

Issued A PayPal 1099 K

The PayPal 1099 K Issues Will Be Astronomical In 2023

I imagine this isn’t a huge issue for a majority of country for the 2021 tax season. That is because the requirements are $20,000 or 200 transactions for the 2021 tax year. Most people are not getting to that level. But, what about in 2022, where the requirement is a miniscule $600?

Sell some old junk on eBay, yup you are getting that 1099-K! Did you deposit $500 into a sports betting app and then withdraw it all when you won $200? Guess what, here comes a $700 1099-K from PayPal. You only won $200 you say? Doesn’t matter! Get that paperwork together. Participate in a rebate program that lets you buy products at a steep discount? PayPal 1099-K is what you get as a thanks for participating in the program.

As you can see a large portion of the population will be getting these things in their email next year. It isn’t hard for most to rack up $600 in activity that PayPal deems is worthy.

Issued A PayPal 1099 K – Final Thoughts

For all of those reasons, plus PayPal’s lackluster customer service and overcharging, I am moving on. I’ll still use PayPal and Venmo from time to time if a friend needs to use it to pay me. But, for cashing out from a program? Nope! I will be avoiding that PayPal 1099-K at all costs in 2022 and beyond. PayPal, you are the weakest link, GOODBYE!

Mark Ostermann
Mark Ostermann is a father, husband and miles/points fanatic. He left the corporate world after starting a family in order to be a stay at home dad. Mark is constantly looking at ways to save money and stay within budget while also taking awesome vacations with his family. When he isn't caring for his family or taking a weekend trip, Mark is working towards his goal of visiting every Major League Baseball ballpark.

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39 COMMENTS

  1. 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.

  2. 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?

  3. 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.

    • Yeah I don’t think the tax programs will be able to deal with it properly and people will end up claiming it. Gonna be a mess for sure.

    • What I have read on eBay forums and also a newsletter about it… The answer is, sadly, yes. One of the many reasons I quit eBay early last year.

  4. 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).

    • Thanks for info. Yeah next year could get very interesting and I think people may end up paying more in taxes than they should if they are doing it themselves. That or they will ignore the form and get a letter from the IRS. Neither of which is good.

    • That is not correct, please do not treat 1099-k like “informational” and leave the income off of your tax return, you could trigger a matching error and/or desk audit. If you receive a 1099, include the full amount reported as income/revenue and then deduct what you think is non-taxable.

      • [I’m still not a tax professional! This isn’t advice! And obviously this is all a mess.]

        Respectfully, we may just be disagreeing about what “informational” means, but it seems pretty clear that the form isn’t meant to be just directly put onto your tax return, but rather used to guide taxpayers in determining what they have to report. The states below are explicit about examples where 1099-K contains income that does not need to be reported:

        Massachusetts: “Form 1099-K is an informational document. You should use the information reported on Form 1099-K in conjunction with your other records to determine whether it’s taxable income and to determine your correct tax.” https://www.mass.gov/service-details/frequently-asked-questions-about-form-1099-k-notices-from-third-party-payment-processors

        Virginia: “Form 1099-K is an informational document and amounts included within are not necessarily subject to income tax in Virginia. You should use the information reported in conjunction with your other records to determine whether it is taxable income and to determine your correct tax.” https://www.tax.virginia.gov/news/did-you-receive-1099-k-what-you-need-know

        Vermont: “Form 1099-K is an informational document. You should use the information reported in conjunction with your other records to determine whether it is taxable income and to determine your correct tax.” https://tax.vermont.gov/business-and-corp/withholding-tax/1099-k

      • Adding one more thought: even if it is not necessary to account for the full 1099-K, this approach Rob mentions (explicitly list the 1099-K, then separately offset or deduct out to correct) may make sense to minimize the risk of any follow-up questions. I also saw this recommended on some other tax forums…. but who knows, it really seems like the blind leading the blind, part of the uncertainty is we just don’t know how the 1099-K will be used. The form exists for a reason.

    • Exactly ! The amount of money they will collect won’t even cover the costs to collect it. They need to revert back to the previous higher dollar values where they had a much better chance of collecting bigger bucks then going after the little guys & the average hard working Americans.

  5. 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.

    • My point is a lot of the stuff being reported isn’t income. This adds legwork to me and the person preparing the taxes. That is a problem. If the reports were accurate then it wouldn’t be.

    • Incorrect. I use Swagbucks to buy SB and manufacture spend towards a credit card bonus which is not taxable and yet will be issued a 1099 for. The problem here is the net win be cast so wide you’ll snag a lot of transactions that aren’t taxable. It’s a matter of it being a pain in the ass, not trying to evade taxes.

  6. 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.

    • For sure it is a bit of that but it also the fact that they don’t really care to categorize things either. That is out of compliance reasons no doubt but there are some obvious things, like rebate programs, that in no way could be misconstrued as income. If they were more accurate I wouldn’t have a problem with it.

  7. 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.

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