PayPal tax holds for US taxpayers - IRS (Internal Revenue Service)

What is Backup Withholding?

When you’re paid for goods and services, the US Internal Revenue Service (IRS) considers this reportable income.

Once you reach the reporting threshold for goods and services payments (i.e., more than $20,000 USD and more than 200 transactions) within a calendar year, US tax laws require us to withhold 24% of such payments when you have not confirmed your taxpayer status by either providing your US tax ID or completing a Certificate of Foreign Status. The withheld amount is sent to the IRS as “backup withholding” and is applied toward any income tax you may owe on those payments.

You can learn more about this tax law on the IRS website.

Please ensure you’ve updated your PayPal app to the latest version to view your tax ID hold(s) and confirm your taxpayer status.

What happens if I don’t confirm my taxpayer status?

If you receive a payment for goods and services that exceeds the IRS reporting threshold, we’ll place that payment - and any future goods and services payments - on a tax hold for at least 60 days. This gives you time to confirm your taxpayer status by either providing your US Tax ID or completing a Certificate of Foreign Status.

If you don’t confirm your taxpayer status within this one-time (60-day) grace period, we’ll start sending 24% of your payments to the IRS as backup withholding for any potential income tax due on a monthly basis. The remainder of your funds will be released to your PayPal account balance.

Is backup withholding also due on payments I received earlier in the year prior to crossing the reporting threshold?

No. Backup withholding does not apply to payments you received before you crossed the IRS reporting threshold.

If you don’t confirm your taxpayer status, the 24% backup withholding will only apply to:

• The payment that pushes you over the reporting threshold, and
• Any goods and services payments you receive afterward, until you confirm your taxpayer status.

Any amounts owed to the IRS may be taken from your available balance or from future payments.

When will I get my payments?

You can confirm your taxpayer status by either adding your US tax ID or completing a Certificate of Foreign Status at any time to end the tax hold and backup withholding on your payments.

* Please note that it can take up to 30 minutes for the tax ID to update and trigger the removal of the tax hold from your account. Completing a Certificate of Foreign Status will require additional time.

Otherwise, we send backup withholding to the IRS on a monthly basis. That means payments that you receive for goods and services will remain on a tax hold until the next scheduled backup withholding date. At such time, 24% of your payments will be sent to the IRS and the rest will be released from the tax hold to the PayPal account balance (assuming no other holds apply).

Does this affect money I receive from friends or family?

Tax laws don’t affect money sent as a Friends and Family payment. They only apply to payments that you receive for goods and services. This includes payments you receive through PayPal Checkout or were sent by the Buyer as Goods and Services payments.

Can I get backup withholding returned?

We can’t return any amount sent to the US Internal Revenue Service, but you can claim backup withholding when you file your taxes.

Adding your US tax ID or completing a Certificate of Foreign Status will help you avoid backup withholding when you’re paid.

What if I’m paid in a different currency?

This tax law applies when you reach the reporting threshold for goods and services payments (i.e., more than $20,000 USD and more than 200 transactions), regardless of the currency in which you received the payment.

When payments you receive are put on a tax hold, currency conversion won’t occur until the tax hold is released.

Changes in the foreign exchange rate may result in a gain or loss between the time when the payment is received versus when the tax hold is released.

If you haven’t confirmed your taxpayer status by either providing your US tax ID or completing a Certificate of Foreign Status, we’re required to withhold 24% of your payments for any potential income tax due.

Your backup withholding payment will be sent to the IRS in US dollars each month. Any currency conversions to US dollars will be performed at the time tax holds are released and backup withholding is applied.

If you haven’t confirmed your taxpayer status by either providing your US tax ID or completing a Certificate of Foreign Status, we’re required to withhold 24% of your payments for any potential income tax due.

Your backup withholding payment will be sent to the IRS in US dollars each month. Any currency conversions to US dollars will be performed at the time tax ID holds are released and backup withholding is applied.

What if I’m exempt from US taxes?

If you’re not a US entity, US citizen, or US person subject to US tax laws, you can let us know when you confirm your US taxpayer status by certifying your non-US tax residency status.

What if I don't have a tax liability to the US?

If you have received more than $20,000 USD and more than 200 payments for goods and services in one calendar year and are not a US tax resident, completing a Certificate of Foreign Status will release your tax hold(s) and help you avoid backup withholding when you’re paid.

Note: Certificate of Foreign Status must be renewed every three years.

If you're unable to complete the certification process when prompted, or if you'd like to complete it proactively:

Non-US Customers with a Non-US PayPal Account:
Complete the Certificate of Foreign Status by filling out the CFS form for individuals or the CFS form for legal business entities.

Non-US Customers with a US PayPal Account:
Certify your foreign status by filling out Form W-8BEN or W-8ECI for individuals or Form W-8BEN-E or W-8ECI for legal business entities.

Upload your completed form in the Notifications section of your PayPal account. Once the form has been uploaded, we will review it and contact you if any further action is needed to restore full access to your PayPal account. If you cannot perform these steps, log in to your PayPal account and click the Help link at the bottom of any PayPal page.

You can find more tax-related information on the PayPal IRS tax website.