PayPal Quietly Toughens Their 1099-K Issuance Policy

Reader IS250 reports on a change PayPal made for the year 2020 and beyond as they broadened the scope of 1099-K issuance to include MassPay payments received, such as payments you’ll receive from Swagbucks, Topcashback, Cardcash and dozens more.

The form 1099-K is for payment processing companies to report those who received more than $20,000 in payments AND had 200+ transactions throughout the calendar year. If you are receiving small amounts of payments, you have nothing to worry about in most of the US.

{Important: While those are the federal reporting requirements, some states have stricter rules: In Vermont, Maryland, Virginia, and Massachusetts the threshold for mandatory 1099-K is just $600 in payments with no minimum transaction amount. In Illinois the threshold is three transactions AND $1000 of payments.}

Previously, PayPal would only count transactions for which YOU paid the processing fee, e.g. if you sell something on eBay and receive payment via PayPal, you’ll be paying the 2.9% fee and that’ll count toward your $20,000 threshold.

Beginning 2020, they seem to be counting payments received from other businesses who pay using the PayPal MassPay, even though it’s the business sending who is swallowing the fee. Examples of Mass Pay Payments include Swagbucks, Coinbase, Topcashback, Vivid Seats, Mypoints, Ysense, Cardcash, Ibotta, Dosh, etc. Reader Celia reports even getting a 1099-K for money she received for splitting a meal with friends.

If you are active in the reselling/portal/etc space, it’s quite possible you’ll have received numerous payments via Paypal and end up receiving a 1099-K for the year. None of this technically changes any tax reporting requirements, but tax forms can sometimes be a pain to deal with, depending on the situation. E.g. if there was no taxable income on the received funds, you still might have to file yourself as a business with $0 income in order to explain the 1099-K. Consult a tax advisor for your own situation.

Again, in most states you’re okay so long as you stay below $20,000 in received payments throughout the year OR you stay below 200 transactions total – either one will keep you beneath the reporting requirements. In the other states mentioned above, it’s really quite difficult to avoid getting the 1099-K, and you might want to try avoiding PayPal altogether for receiving payments if you find the tax form a nuisance.

Just to note again: The form 1099-K reports the amount of money received, not the amount of profits, e.g. if you sell $50k of items on eBay for a $1k gain, you’ll get a tax form for $50k, but you’ll only pay taxes on the $1k of gains.

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Celia
Celia

I just logged into my PayPal account and there is an updated 1099-k.

I had 1.2k reported on my original one that were all rebates from Ibotta, Swagbucks, RMN, etc. No other transactions. I’m in IL.

This new, updated and marked corrected, 1099-k is all 0s now.

sam
sam

Is the only think you do on swagbucks cashback rebates?

Celia
Celia

I had about $250 of the $1,200 that were Swagbucks PayPal. The rest were coupons.com, Ibotta, and RMN.

Sam
Sam

I mean did you do activities on Swagbucks besides buy things and getting cash back from that?

Celia
Celia

Yes, the Swagbucks earned were from buying in store items, doing signups, MM offers posted here, etc…. then cashed out either by monthly discounted gift cards and PayPal.

Rob

I had a 1099K in late January on my paypal account, I’m in VA. It has now disappeared and paypal says that I do not have any tax documents for 2020. I’m not sure what to do, but wanted to see if anyone else ran into a similar situation.

Dave
Dave

Same exact same thing here this morning. I was just over the 20K mark.

Rob

Thanks. I have reached out to PayPal for clarification but have yet to hear back. I will update when I do.

Dave
Dave

Cool, let me know what they say please.

Rob

Paypal responded, but it was not super-helpful. They are telling me now that I did not meet the requirements for a 1099-K. But they quoted the wrong requirements (federal and I’m in VA which has lower requirements), and they did not address my question saying that I used to have one and now its gone. Because its only about $150 in “profit” I’m going to report the information that existed on the former 1099-K that disappeared, but others who have more at stake may feel differently. Regardless, I urge everyone who had a 1099-K from Paypal a few months ago to take another look and see if its gone.

They may have changed the way they calculate whether something counts as a payment or not for purposes of generating a 1099-K.

IS250

My tax document is gone as well from my account. I’m still going to file with the numbers from the original 1099-K since I doubt they’ve actually corrected anything.

Celia
Celia

Mine’s gone too but the notification is still in my account and got an email again today from them that it was available. I’m in IL so the threshold is 1K (or four transactions). None of the 1.2K is taxable on mine.

Rob

My 1099K has now reappeared and looks identical to the one that had been there previously. Based on what Celia said above, I suspect PayPal made some changes in how they calculate whether or not something gets included in their 1099K, but it did not impact me. I had only PFS coin purchases and one other credit card sale on my 1099k.

Adam
Adam

Dang this will be a headache to sort through considering I have actual 1099-K payments mixed in with Swagbucks/Rakuten. I’m in VA and I imagine a lot of people will unexpectedly see this with the change from $20,000 to $600 this year. r/tax on reddit has more discussion around this as well if you are looking for more opinions on how to handle it.

Josh
Josh

paypal sucks

Alexi
Alexi

My wife was 7k in sales and 60 transactions (eBay sales). She was issued a PayPal 1099-K. We live in Texas. 1099-K also indicated Texas. Makes no sense.

Steven
Steven

For Maryland, Virginia, and MA with $600 threshold, what if you sold your used stuff that you had at home? You don’t get any profit. What do you do if get a 1099K from PayPal? Do you just ignore it and file your tax as usual?

IS250

No. You never, ever ignore ANY 1099. If a 1099 is issued, that means the IRS has a copy and will look for numbers to all add up.

You file taxes and show a capital loss. This will reduce your taxable income which means less taxes to be paid and/or a higher tax refund. But you need document everything properly. If your numbers are wonky and seem made up, you run the risk of an audit. You would file a Schedule C.

Burton

Mostly agree, but friendly reminder you can’t take a tax loss on the sale of personal property. Generally that means you don’t even have to bother to report it but if you received a 1099 showing the proceeds agree best to show it so you can clarify it is not income.

James
James

do you think paypal will amend the 1099 to correct their error. friend’s payment should not be part of 1099

Guy who buys stuff
Guy who buys stuff

Definitely not. I still have an “open” ticket with them from 2017 on their incompetence on this topic.

Claire
Claire

No, they won’t do a damn thing about it. I tried to contact them back then for getting a 1099, because I was confident my $694 is way below $20,000 threshold (before I knew MA residents are getting killed on this), but never was able to raech anyone.

MrObvious
MrObvious

Friendly advice: Be sure to list on your tax form that your advisor was User IS250 on a Internet Blog: DoC. All will be forgiven in that case, as they will know you used free online Internet advice.
OMG – talk to a professional folks!

IS250

No kidding bud. Everyone knows to use a pro because everyone’s taxes are different and we don’t know everything there is to know. But make sure you write a personal letter to MrObvious thanking him for stating the obvious.

TDD
TDD

I received a 1099K as well. I itemized all my transactions on the 1099k to determine all the eBay/Paypal fees (10% + 2.9% + $0.30 per transactions) as well as shipping and even the materials to ship ($0.10/mailer). So I was able to place an amount under “fees” and an amount under “supplies” for deductions from the 1099K amount PayPal put. A few of my sales were for items wherein there is a purchase record (stuff from a store). And that amount I put under “cost of goods”.

Questions:
1) A few of my sales were of grad school books which even to this day they hold the SAME value as I purchased them 10 years ago. No way I have the records for those purchases. In fact, you could even look at those sales as a “loss” since buying those books new would cost at least 50% more. Can I deduct the entirety of this purchase? If yes, which section do I put this under?

2) A few people sent me money to reimburse me for money I gave them by using the business option instead of the friends option (and after which they gave me the “fee” i paid later in cash). This was not “profit”. Can I deduct this? If yes, which section do I put this under?

3) Rakuten and Upside send me cash back by Paypal which gets tracked as “income” but it is not. Can I deduct this? If yes, which section do I put this under?

Claire
Claire

I first got hit by a 1099 on a mere $694 from PayPal for 2017 tax reporting (I’m in MA). What my accountant did was put it on Schedule D as long term capital gain, and Form 8949, claiming sale of personal items. The proceeds and cost basis are the same, so there’s no gain or loss to affect the tax.

Cj
Cj

i just wanna clarify that you will ONLY receive 1099k form IF you receive payments over 20.000 AND 200 total transactions ( it must be BOTH) this is from IRS and paypal website . This applies to most states with the exceptions listed. i felt it is not clear enough in this post

IS250

No. This is only partially true and the original post is pretty clear. There are other lower thresholds that will trigger a mandatory 1099-K for various states. Most importantly, those thresholds only define a mandatory issuance. This doesn’t mean you won’t or can’t receive a 1099 if you’re under those thresholds. It’s YMMV in that regard.

The purpose of this post is to figure out Paypal’s definition of a transaction. Paypal is now counting transactions where it normally did not do in the past. This is important because these transactions are now included in the 1099-K; not everyone’s taxes are straightfoward and easy. This can complicate matters for many people.

sam
sam

So if my address is in MA do i need to report this if its under 20k?
Deff switching to checks after this…

Joe
Joe

Just curious, how are folks accounting for portal / cashback payments on their Schedule C when filing taxes? Are you reporting it as an “other” expense or negative income?

Nick
Nick

From my understanding, cashback payments aren’t taxable, as they are basically rebates. Most swagbucks offers aren’t taxable either, per their terms. This is such a pain, but I think you just mark on the schedule C that those transactions aren’t taxable income.

Ken
Ken

I received a 1099-K from Paypal due to SB. I live in VA. I’m not self employed, does that mean I still have to report the 1099k on a schedule C? And what type of business would that be (that field is required in Schedule C)?

Mike
Mike

Very interested in this as well. Do you have to use Schedule C, or could this be handled on Line 21 of Schedule 1 (Other Income), putting the full 1099-K amount and then putting negative amounts for the non-taxable items?

Jp
Jp

This is what I did since mine was mostly portal cash back and not Biz related. I reported the full amount as misc income and then included another line that said “nontaxable rebates” with a negative amount.