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PayPal and the 2020 Taxes 1099-K Form Reporting - IL, VT, MA, VA, MD
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59 posts in this topic

PayPal just sent me a notice stating that my 1099-K tax form was ready.  This clearly had to be a mistake.  I'm certain I was well under the threshold for reporting ($20,000 in sales AND 200 transactions).

So, after doing some digging, I found that the residents of the wonderful state of Illinois have their own tighter reporting numbers, as does VT, MA, VA, and MD.  :pullhair:

I just wanted to give anyone in these states a heads up, as it took a little bit of digging on my part to find this info.

 

Why did I receive a 1099-K if I didn’t meet the IRS reporting threshold?
Some states (VT, MA, VA, IL, MD) have reporting obligations at a threshold lower than the federal reporting thresholds:

  • Vermont, Massachusetts, Virginia, and Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions.
  • Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processed.

 

I'd be interested to know if eBay is also reporting this revenue with their new payment systems (I would imagine they are).

Funny enough, I was planning on having my first sales thread of the year here, but now I may hold off, as I'm certain I'll hit my $1000 limit for the year between that and my recent sales outside of the boards.  It doesn't look like PayPal is going to be a good option for me personally.  (And yes, I realize that this is not PayPal's fault).

 

 

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Wow, sounds as though they are really tightening the screws on all of this online internet selling that's taking place in this pandemic driven economy. :censored:

Any idea if the major auction houses are also required to send out these tax forms to you, and if so, do they also provide a matching copy to the IRS on your behalf to make sure that everything gets reported?  hm  (shrug)

Edited by lou_fine
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20 minutes ago, lou_fine said:

Any idea if the major auction houses are also required to send out these tax forms to you, and if so, do they also provide a matching copy to the IRS on your behalf to make sure that everything gets reported?  hm  (shrug)

My understanding is that if an entity sends you the form, it would have also been reported to the IRS.  Otherwise, why go through the trouble of sending out the forms to individuals if the IRS wasn't notified in the first place?

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The $600 threshold has been in place in MA for a couple years. If an entity sends an individual a 1099K then it is simultaneously sent to the state tax authorities. However, it is still up to the individual to classify the 1099K when filing his/her taxes, as not all PayPal payments are created equally. For example, someone who has a side business selling jewelry online for a profit and uses PayPal for payment receipt is much different than someone who cleaned out their attic and sold an old piece of furniture for $600. 

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9 hours ago, masterlogan2000 said:
  • Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processed.

 

I know a lot of people that are going to be upset about this as they've tried for years to keep under the 20k.

 

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1 hour ago, jsilverjanet said:

I know a lot of people that are going to be upset about this as they've tried for years to keep under the 20k.

 

Have you checked into the possibility of setting up an off-shore bank account in one of the Caribbean tax haven countries?  lol

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15 hours ago, masterlogan2000 said:

PayPal just sent me a notice stating that my 1099-K tax form was ready.  This clearly had to be a mistake.  I'm certain I was well under the threshold for reporting ($20,000 in sales AND 200 transactions).

So, after doing some digging, I found that the residents of the wonderful state of Illinois have their own tighter reporting numbers, as does VT, MA, VA, and MD.  :pullhair:

I just wanted to give anyone in these states a heads up, as it took a little bit of digging on my part to find this info.

 

Why did I receive a 1099-K if I didn’t meet the IRS reporting threshold?
Some states (VT, MA, VA, IL, MD) have reporting obligations at a threshold lower than the federal reporting thresholds:

  • Vermont, Massachusetts, Virginia, and Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions.
  • Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processed.

 

I'd be interested to know if eBay is also reporting this revenue with their new payment systems (I would imagine they are).

Funny enough, I was planning on having my first sales thread of the year here, but now I may hold off, as I'm certain I'll hit my $1000 limit for the year between that and my recent sales outside of the boards.  It doesn't look like PayPal is going to be a good option for me personally.  (And yes, I realize that this is not PayPal's fault).

 

 

I would imagine this will continue. They want that hidden revenue they have been missing for years. That's not the only way to be put over the $20K limit
if you are close all types of stuff can push you over. 

Be interesting this year as many new sellers are already starting to panic on Facebook now and why many people on Instagram try to get you to pay them for F/F
so they wont get his with a 1099 and of course forfeit paypal protection.

 

 

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So if I sell something for $600 or more while living in the state of MA I will be taxed if I use PP, then turn around and buy something with that same money, I will get taxed again? Taxachusetts is right! rantrant

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45 minutes ago, s-man said:

So if I sell something for $600 or more while living in the state of MA I will be taxed if I use PP, then turn around and buy something with that same money, I will get taxed again? Taxachusetts is right! rantrant

I'm not a tax professional (if someone is please correct me) but technically any net income (not including expenses associated with the hobby) that results in a profit should be declared to the IRS no matter how small on Form 1040, Schedule D I think.  The IRS may not have required ebay to file a 1099K form under that threshold of $20k and 200 or more sales.  The big problem now is that if you weren't required before but are now due to Paypal's new requirement you will have to make a choice on whether to report the income as a hobby or a business.  The kicker is that after 2017 and thanks to the new Trump tax reform bill that was passed, hobby expenses are no longer deductible.  So you can't deduct any hobby related expenses to reduce the tax burden of your hobby sales.  That includes any losses from sales or if you sold something for less than what you paid. 

On the other hand, if you are able to justify your sales as a business, you can still deduct any of the business related expenses to reduce the taxable income.  However, you have to follow certain rules and prove that you're operating as a business in the eyes of the IRS.  You'll need to talk to a tax advisor to see what those might be. Reporting of business net income goes on Schedule C where you tally your gross expenses and then subtract any business related expenses that are allowable to get your net income.  Again, check with a tax advisor on what the allowable expenses are.  I wonder if there will be an increase in all cash transactions for higher priced items. hm

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I got a 1099 from PayPal also and it was a shock.  I now owe about $3,000 in taxes that I wasn't expecting.  (I'm in Illinois.)  Now eBay wants to force everyone into "Managed Payments" and you must give them your Social Security number or Tax ID.  I will have no choice but to stop selling on eBay and stop accepting PayPal payments for online sales.  

This really sucks.   :censored:

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On 1/24/2021 at 3:31 AM, lou_fine said:

Wow, sounds as though they are really tightening the screws on all of this online internet selling that's taking place in this pandemic driven economy. :censored:

Any idea if the major auction houses are also required to send out these tax forms to you, and if so, do they also provide a matching copy to the IRS on your behalf to make sure that everything gets reported?  hm  (shrug)

It applies only to third-party settlement organizations such as Paypal.

From Internal Revenue Code section 6050W FAQ:

https://www.irs.gov/pub/irs-utl/irdm_section_6050w_faqs_7_23_11.pdf

"Third-party settlement organizations must report the gross amounts of reportable transactions of any payee for whom they settle payments using their network provided that a payee’s reportable transactions exceed $20,000 and the aggregate number of those transactions exceeds 200."

Here's a Deloitte article about the new section 6050W thresholds for VT and MA:

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-states-revising-form-1099-k-filing-thresholds-121217.pdf

"Vermont passed legislation in 2017 requiring TPSOs to file Forms 1099-K with the Vermont Department of Taxes if the amount of transactions reportable to the state exceeds $600 annually for any payee (instead of at the $20,000 and over 200 transactions level under the de minimus threshold). Vermont’s new rule also requires TPSOs to report transactions at the lower threshold to payees. The new rule is effective retroactively to payments made beginning January 1, 2017, and applies to Form 1099-K filings for the 2017 year that will be filed in 2018."

Unclear if these lower reporting threshold states (VT, MA, VA, IL, MD) are coordinating with the feds or not so this may only apply to state tax and not federal.  

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1 hour ago, Mutant Manatee said:

I got a 1099 from PayPal also and it was a shock.  I now owe about $3,000 in taxes that I wasn't expecting.  (I'm in Illinois.)  Now eBay wants to force everyone into "Managed Payments" and you must give them your Social Security number or Tax ID.  I will have no choice but to stop selling on eBay and stop accepting PayPal payments for online sales.  

This really sucks.   :censored:

You owe $3,000 in taxes or you owe on $3,000 in sales?

If it's owe, how much in sales did you have in order to get to that amount? I haven't checked my records yet -- and I was way under $20,000 -- but now I'm a bit leery to do the math.

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7 minutes ago, manetteska said:

You owe $3,000 in taxes or you owe on $3,000 in sales?

If it's owe, how much in sales did you have in order to get to that amount? I haven't checked my records yet -- and I was way under $20,000 -- but now I'm a bit leery to do the math.

$3,000 in taxes based on approximately $10,000 in sales where payment was made via PayPal.

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2 minutes ago, Mutant Manatee said:
13 minutes ago, manetteska said:

You owe $3,000 in taxes or you owe on $3,000 in sales?

If it's owe, how much in sales did you have in order to get to that amount? I haven't checked my records yet -- and I was way under $20,000 -- but now I'm a bit leery to do the math.

$3,000 in taxes based on approximately $10,000 in sales where payment was made via PayPal.

Fudge. Back to checks and money orders.

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7 minutes ago, Shrevvy said:

You should not pay taxes on your gross sales. Deduct all your related expenses, cost of product, bags/boards, shipping, insurance, PP fees, eBay fees, etc. I would assume you have a much lower tax liability after doing that. 

I will have my accountant/tax preparer look into this, but according to a post above hobby expenses are no longer tax deductible as of 2017.   I don't know if I can report this income as a business and therefore deduct my expenses.  I have never had a tax ID number.

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7 minutes ago, Mutant Manatee said:

I will have my accountant/tax preparer look into this, but according to a post above hobby expenses are no longer tax deductible as of 2017.   I don't know if I can report this income as a business and therefore deduct my expenses.  I have never had a tax ID number.

Is selling on ebay your hobby?  You sold an item for X.  You don't owe taxes on what you sold it for.   It cost you A, you incurred B in storing it and preparing it for sale, It cost you C in commisions to sell it, you paid D in paypal fees,  and to sell it you needed a computer and internet.  Add all those expenses together and deduct it from what you sold it for.

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23 minutes ago, shadroch said:

Is selling on ebay your hobby?  You sold an item for X.  You don't owe taxes on what you sold it for.   It cost you A, you incurred B in storing it and preparing it for sale, It cost you C in commisions to sell it, you paid D in paypal fees,  and to sell it you needed a computer and internet.  Add all those expenses together and deduct it from what you sold it for.

Unless you are an accountant, be careful about giving out tax advise. Several states have different laws as to what constitutes a business and what licenses are required.

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