Will PayPal report my sales to the IRS?

Information provided by PayPal is not intended to be and should not be construed as tax advice. For questions about your specific tax situation, please consult a tax professional.

Payment processors, including PayPal, are required to provide information to the US Internal Revenue Service (IRS) about customers who receive payments for the sale of goods and services above the reporting threshold in a calendar year.

Will I have to pay taxes when sending and receiving payments on PayPal - what exactly is changing?

The Internal Revenue Service (IRS) announced transitional reporting requirements for payments received for goods and services. These requirements will lower the Form 1099-K reporting threshold over a 3-year period from the previous threshold of more than $20,000 in goods and services transactions and more than 200 goods and services transactions in a calendar year. We’ve summarised the IRS thresholds for Form 1099-K below.

Here’s some more detail on the 1099-K threshold change:

• This new threshold change is only for payments received for goods and services transactions, so this doesn’t include things like paying your family or friends back using PayPal for dinner, gifts, shared trips, etc.
• This change was introduced by the American Rescue Plan Act of 2021, which amended some sections of the Internal Revenue Code to require payment processors like PayPal to report goods and services transactions paid to customers with $600 USD or more in annual gross sales on Form 1099-K. Previously, a 1099-K was only required when a user received more than $20,000 USD in goods and services transactions and more than 200 goods and services transactions in a calendar year. To implement this new $600 threshold, the IRS is phasing in the requirement by reducing the federal reporting threshold over a 3-year period.
• This reporting is required when the sender identifies the transaction as being for goods and services, even if it was a mistake. Although this transaction is reportable by PayPal, it’s possible that the transaction is not taxable. It’s always best to speak with a tax professional for any specific concerns you may have.

For residents in Illinois, Maryland, Massachusetts, Vermont, or Virginia

If you live in the following US states, you’re subject to a lower reporting threshold for state 1099-K reporting purposes:

The Form 1099-K that you receive is based on your primary address on the last day of the previous tax year. If you changed your primary address to one of these states after that date, your account activity would be captured in Form 1099-K reporting for the following tax year.

Form 1099-K is also required to be issued if your transactions were subject to backup withholding during the previous calendar year, regardless of whether your total payments for goods and services met the reporting threshold.

What is a Goods and Services payment with PayPal?

Both PayPal and Venmo offer a way for customers to tag their peer-to-peer (P2P) transactions as either personal / friends and family, or goods and services by choosing the appropriate category for each transaction. Users should select Goods and Services whenever they are sending payment to another user to purchase an item, like a couch from a local ad listing or concert tickets, or paying for a service. These transactions are also eligible for coverage under PayPal and Venmo’s Purchase Protection Program. Goods and services payments are designed to provide both buyers and sellers with peace of mind knowing that they may be covered if the transaction doesn’t go as expected.

Find out more about PayPal Goods and Services transactions, and Venmo Goods and Services transactions. Terms and conditions apply.

Will the updated 1099-K threshold change apply if I sell personal property, like a couch or an item at a garage sale, if it was sold for less than its original value? Will I be issued a Form 1099-K?

Form 1099-K is an IRS informational tax form that is used to report goods and services payments received by a business or individual in the calendar year. While payment service providers, like PayPal and Venmo, are required by the IRS to send customers a Form-1099K if they meet the threshold amount ($5,000 for calendar year 2024, $2,500 for calendar year 2025, or $600 for calendar years 2026 and beyond), there are certain amounts included on the form that may not be taxable. PayPal is required to report the total gross amount of payments received for goods and services which can include:

• Amounts from selling personal items at a loss
• Refunded amounts
• Processing fees

However, certain amounts may not be considered taxable income to you. We encourage customers to speak with a tax professional when reviewing their 1099-Ks to determine whether specific amounts are classified as taxable income.

What is Form 1099-K?

Form 1099-K is an IRS informational tax form used to report payments received by a business or individual for the sale of goods and services that were paid via a third-party network, often referred to as a Third Party Settlement Organisation (TPSO), or credit/debit card transaction. The IRS requires TPSOs, such as PayPal and Venmo, to issue a Form 1099-K, which shows the total amount of payments settled through a TPSO in the calendar year. Taxpayers should consider this amount with their tax adviser when calculating gross receipts for their income tax return. For more information, visit the IRS website. If you meet the IRS or applicable state reporting threshold in a given calendar year, PayPal will send you a Form 1099-K in January of the following year and file this form with the IRS (and state revenue authority, if applicable) by the required due date.

Form 1099-K is also required to be issued if your transactions were subject to backup withholding during the previous calendar year, regardless of whether your total payments for goods and services met the reporting threshold.

If you think you're potentially eligible for goods and services tax reporting, you can access your Form 1099-K from your PayPal account around January 31. If you’re eligible, we’ll send you a notification by email once your Form 1099-K is available. Please go to the new PayPal Statements & Tax Centre. Merchants, please go to your Tax Statement Page. You won’t receive a Form 1099-K if you didn’t meet the reporting requirement and didn’t have any backup withholding applied for the tax year.

What do I need to do when the 1099-K threshold change takes effect?

PayPal and Venmo will ask customers to provide tax information like an Employer Identification Number (EIN), Individual Taxpayer Identification Number (ITIN), or Social Security Number (SSN), if they haven’t already, as they approach the reporting threshold, so they may continue using their account to accept payments for the sale of goods and services without any issues. If your TIN fails verification, you'll need to fill out an equivalent tax form W-9. If there are any discrepancies in your name and TIN combination between the IRS’s records and what PayPal has on file and used for Form 1099-K, you may receive an IRS B-Notice.

How does this 1099-K threshold change affect how I use PayPal?

This change should not affect how you use PayPal and Venmo. You can continue to use the PayPal and Venmo platforms as you do at the moment, and the benefits that are offered by sending payments via our goods and services P2P feature – including buyer and seller protections on eligible transactions for PayPal and Venmo.