What Does PayPal Report to the IRS?

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PayPal is an online service that allows businesses and individuals to make purchases, request payments and send money. PayPal was originally able to protect the privacy of its users, but with the passage of new legislation in 2008, some users lost that privilege.

Housing Assistance Tax Act

The Housing Assistance Tax Act of 2008 imposes certain new Internal Revenue Service reporting requirements on companies such as PayPal. These requirements, which were incorporated into the Internal Revenue Code as Section 6050W, took effect in 2011.

Reporting Requirements

Under the act, PayPal is required to report to the IRS the particulars of any individual or business account receiving at least $20,000 in payments annually from at least 200 transactions. Both of these threshholds must be met to trigger the report, which is done on a new form, Form 1099-K.

Preparing and Implementing

The gap between the passage of the 2008 Housing Assistance Tax Act and the law going into effect in 2011 gave PayPal users who receive payments time to prepare for tax reporting, and gave PayPal time to establish reporting protocols. In addition it gave the IRS the opportunity to devise guidelines and regulations for implementing the law, which affected numerous financial institutions in addition to PayPal.

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