Author Topic: PayPal sending 1099 forms for US users in 2012 (Read 14587 times)

helix7 · « **on:** November 17, 2010, 16:57 »

Just saw this article on PayPal about the new IRS 6050W law requiring PayPal and other payment providers to report detailed transaction data to the IRS for any US PayPal user who receives at least $20,000 in a single year. This isn't anything new or unexpected in itself, it's been discussed for probably a couple of years now as far as I remember.

What's odd to me is that PayPal will be issuing 1099 forms. Maybe this make sense somehow, but I don't see it. It looks to me like PayPal is going to send me a 1099 form for earnings I received through microstock from some companies (like SS and BigStock) that also issue 1099 forms. Am I wrong here, or does this sound like we'll be getting 2 1099 forms for some of the same exact money?

donding · « **Reply #1 on:** November 17, 2010, 17:01 »

Now that will be a nightmare since just about everyone gets paid through paypal from the stock agencies and I doubt the IRS will listen and with the track record these microstocks have for dealing with 1099's, I doubt they will listen either!!

jsnover · « **Reply #2 on:** November 17, 2010, 17:24 »

I don't think I'll be required to deal with this because I don't think I will get more than 200 separate PayPal payments a year (52 from iStock and the odd few from relatives in the UK for kids birthday presents). It's $20K and 200 payments.

The form will be new - a 1099-K, so I assume it'll be used to reconcile amounts on other types of 1099s and catch those that aren't on any 1099.

helix7 · « **Reply #3 on:** November 17, 2010, 17:35 »

I'm also looking at this from a freelance graphic designer standpoint. If I've got a client who pays me for a project, I'm reporting that I earned $X from that client, not from PayPal. But then PayPal is going to issue a 1099 for that exact same money.

I'm hoping there is a logical explanation for all of this and an easy way of dealing with it. But right now, I feel like I'm going to need help from my accountant to figure out this new 1099 that will include the bulk of my freelance and stock income that comes through PayPal, and somehow avoid double-reporting the same earnings.

sjlocke · « **Reply #4 on:** November 17, 2010, 18:19 »

Something else to get your senator to revoke.

lisafx · « **Reply #5 on:** November 17, 2010, 18:22 »

This is absolutely bizarre. I had expected paypal to report earnings to the IRS, because as you said, Mike, it has been discussed for a couple of years.

But I don't see how they could possibly 1099 us for the same money we are already getting 1099'd on from the agencies.

Does anyone know if this applies to Moneybookers too? Oh, I see it applies to all payment services.

Some thoughts on avoiding this:

1. Request no more than one payment a month from each agency you do business with.

2. Switch to check payments from agencies you get frequent payouts from.

3. Have a spouse or other relative open a paypal account and switch half your agencies to that account.

4. Assign half your agencies to pay via Moneybookers and half via Paypal so that neither one reaches the 200 payment threshold.

Disclaimer - I am not suggesting to avoid paying your taxes. Most of us already pay taxes on our micro earnings, and are 1099'd by the agencies we do business with. I am only suggesting ways to avoid any confusion caused by the extra paperwork involved in this mess.

No matter how you slice it this is going to be a big additional PITA.

lisafx · « **Reply #6 on:** November 18, 2010, 18:58 »

I have been looking all over the Moneybookers site and I don't see anything about this new US law. Are they not subject to it because they are headquartered outside the US?

Whiz · « **Reply #7 on:** November 19, 2010, 00:16 »

Quote from: jsnover on November 17, 2010, 17:24

The form will be new - a 1099-K, so I assume it'll be used to reconcile amounts on other types of 1099s and catch those that aren't on any 1099.

This is probably what it amounts to.

dnavarrojr · « **Reply #8 on:** November 19, 2010, 09:29 »

So, this will be in 2012 regarding payments made in 2011, correct?

And is it based on the number of transactions or a dollar amount? I've seen reports of one or the other.

lisafx · « **Reply #9 on:** November 19, 2010, 10:30 »

Quote from: dnavarrojr on November 19, 2010, 09:29

So, this will be in 2012 regarding payments made in 2011, correct?

And is it based on the number of transactions or a dollar amount? I've seen reports of one or the other.

According to the notice on the paypal site, it's 20k AND 200+ payments.

cthoman · « **Reply #10 on:** November 19, 2010, 10:57 »

So do these solutions actually solve anything or does it just make it harder for people that actually do pay their taxes.

sjlocke · « **Reply #11 on:** November 19, 2010, 10:59 »

Exactly.

lisafx · « **Reply #12 on:** November 19, 2010, 14:12 »

Quote from: cthoman on November 19, 2010, 10:57

So do these solutions actually solve anything or does it just make it harder for people that actually do pay their taxes.

What solutions do you mean? Paypal sending 1099s? If that's what you mean, I don't see how that benefits anyone. I talked to my accountant and she said it's going to be a real PITA to sort out the money on the paypal 1099 along with the SAME money on 1099s from DT, FT, BigStock, SS, etc.

This is one area where the Istock exclusive folks have it a lot easier, I think.

cclapper · « **Reply #13 on:** November 19, 2010, 17:01 »

Quote from: lisafx on November 19, 2010, 10:30

Quote from: dnavarrojr on November 19, 2010, 09:29
So, this will be in 2012 regarding payments made in 2011, correct?

And is it based on the number of transactions or a dollar amount? I've seen reports of one or the other.

According to the notice on the paypal site, it's 20k AND 200+ payments.

I'm thinking I don't have anything to worry about then.

GL Reviewer · « **Reply #14 on:** November 19, 2010, 17:13 »

There was a thing going around on the web a few years ago with the IRS trying to go after those "pro" Ebay sellers but it never materialized to my knowledge. Perhaps this is the new way the IRS will approach.

cthoman · « **Reply #15 on:** November 19, 2010, 18:01 »

Quote from: lisafx on November 19, 2010, 14:12

Quote from: cthoman on November 19, 2010, 10:57
So do these solutions actually solve anything or does it just make it harder for people that actually do pay their taxes.

What solutions do you mean? Paypal sending 1099s? If that's what you mean, I don't see how that benefits anyone. I talked to my accountant and she said it's going to be a real PITA to sort out the money on the paypal 1099 along with the SAME money on 1099s from DT, FT, BigStock, SS, etc.

This is one area where the Istock exclusive folks have it a lot easier, I think.

I meant IRS solutions to try to find tax dodgers. I assume the cheaters will still cheat and the only people dealing with the new forms will be the rest of us.

pet_chia · « **Reply #16 on:** November 19, 2010, 18:22 »

Quote from: lisafx on November 19, 2010, 14:12

Quote from: cthoman on November 19, 2010, 10:57
So do these solutions actually solve anything or does it just make it harder for people that actually do pay their taxes.

What solutions do you mean? Paypal sending 1099s? If that's what you mean, I don't see how that benefits anyone. I talked to my accountant and she said it's going to be a real PITA to sort out the money on the paypal 1099 along with the SAME money on 1099s from DT, FT, BigStock, SS, etc.

This is one area where the Istock exclusive folks have it a lot easier, I think.

Most forms of regulation are created so that big companies can shut down smaller competitors. A big company already has a big bureaucracy on the payroll and a lot of automated systems. Therefore cost to a large company of complying with new, enhanced regulations is much less, as a percentage of their revenues, than the cost to a small company. That is why whenever some new, onerous and small-business-killing government regulation comes down the pipe you will find that it was preceded by an army of corporate lobbyists greasing palms in the legislature and a battalion of shills in the media claiming that the public will be better served. The government is always happy to go along with the push for more regulation because it means more power for them and more patronage jobs and porkbarrel contracts to distribute to their political supporters.

In this case if I understand it correctly, the 1099 was slipped into the Obamacare bill, which was basically a kind of early Christmas present for large health insurance companies, big pharmaceutical companies, etc. who want the entire country to be forced to buy their services at price levels set by the government so that their profits are guaranteed. Especially the young and healthy people who now work independently or for small companies, who do not currently have health insurance, drug plans, etc. and who don't want it. The 1099 forms, besides being an administrative burden that hurts small companies disproportionately, are also a way of trying to flush out these people wherever they are working, and force them to "get with the plan", i.e. fork over the dough, and when their dough runs out, go work as a drone at some huge company (become exclusive in other words) or get government welfare.

Just saying!

cthoman · « **Reply #17 on:** November 19, 2010, 18:41 »

Quote from: pet_chia on November 19, 2010, 18:22

The 1099 forms, besides being an administrative burden that hurts small companies disproportionately, are also a way of trying to flush out these people wherever they are working, and force them to "get with the plan", i.e. fork over the dough, and when their dough runs out, go work as a drone at some huge company (become exclusive in other words) or get government welfare.

Just saying!

Well, I don't know about business killing. I'd just rather not spend another hour or two dealing with unnecessary forms for taxes that I was going to pay anyway. But, your way is fun too... DOOOOOOOOOOOOOOOOOOOOOOMMMMMMMMMMMMMMMMMMMMMMMM!!!!!!!!!!!!!!!!!!!!!!!

sjlocke · « **Reply #18 on:** November 19, 2010, 21:39 »

Quote from: cthoman on November 19, 2010, 18:41

Quote from: pet_chia on November 19, 2010, 18:22
The 1099 forms, besides being an administrative burden that hurts small companies disproportionately, are also a way of trying to flush out these people wherever they are working, and force them to "get with the plan", i.e. fork over the dough, and when their dough runs out, go work as a drone at some huge company (become exclusive in other words) or get government welfare.

Just saying!

Well, I don't know about business killing. I'd just rather not spend another hour or two dealing with unnecessary forms for taxes that I was going to pay anyway. But, your way is fun too... DOOOOOOOOOOOOOOOOOOOOOOMMMMMMMMMMMMMMMMMMMMMMMM!!!!!!!!!!!!!!!!!!!!!!!

Don't forget, the PITA 1099, is the one you will have to send to any company you spend more than $600 with. And you have to get their EIN or other data to do the form. I've already contacted my legislators, and they are working against this ridiculous paperwork burden that will accomplish nothing in the end.

lisafx · « **Reply #19 on:** November 20, 2010, 13:54 »

Quote from: cthoman on November 19, 2010, 18:01

I meant IRS solutions to try to find tax dodgers. I assume the cheaters will still cheat and the only people dealing with the new forms will be the rest of us.

Amen to that! ^^

Quote from: sjlocke on November 19, 2010, 21:39

Don't forget, the PITA 1099, is the one you will have to send to any company you spend more than $600 with. And you have to get their EIN or other data to do the form. I've already contacted my legislators, and they are working against this ridiculous paperwork burden that will accomplish nothing in the end.

WTH??!! We have to SEND 1099s to companies we do business with? What kinds of companies are those -vendors we buy equipment from? Or do you mean models? ~~Could you go into more details, Sean? I haven't heard anything about this...~~

Okay, just found this article explaining it all: http://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/

Can't believe this was passed in May and this is the first I am hearing of it. I watch the news every day and this little nugget was conveniently not mentioned. What a massive cluster%#@k!!!

cthoman · « **Reply #20 on:** November 20, 2010, 15:07 »

That's a pretty amusing article. So is a law that they can't possibly enforce really a law? I can't imagine that they can possibly get all these people and small businesses to file 1099 for every moderate sized purchase. I rarely get all the 1099s I'm supposed to get, so I can't really see more being filled out. If anything, I think this will just cause businesses to give up and send less.

Also, am I supposed to send Paypal a 1099 also for all the fees that they take off. This thing doesn't seem to make any sense and I don't see much coming of it.

lisafx · « **Reply #21 on:** November 20, 2010, 16:12 »

Quote from: cthoman on November 20, 2010, 15:07

That's a pretty amusing article. So is a law that they can't possibly enforce really a law? I can't imagine that they can possibly get all these people and small businesses to file 1099 for every moderate sized purchase. I rarely get all the 1099s I'm supposed to get, so I can't really see more being filled out. If anything, I think this will just cause businesses to give up and send less.

I imagine the way they will enforce this is if you deduct those purchases on your tax return. If you don't take the deduction, then you will probably not have to bother filling out the 1099. But most of us probably deduct our business expenses. I know I do.

What a lot of extra work to keep track of all this, not to mention getting the EIN's of everyone I do business with.

Just followed Sean's lead and contacted all my congress people and those from states where my parents live too. I wonder what the odds are the new congress will roll back this BS?

pet_chia · « **Reply #22 on:** November 20, 2010, 16:32 »

Quote from: cthoman on November 20, 2010, 15:07

That's a pretty amusing article. So is a law that they can't possibly enforce really a law? ...

It's a law, in the sense that while it may not collect any significant revenue, it will mean that whenever someone angers them, for example by being an outspoken critic of the government (or for any other reason), they can audit them and screw them over with fines and imprisonment.

When you have a legal and tax code consisting of several tens of thousands of pages, to which legislators add thousands more pages every year, then the effect is that EVERYONE is technically a criminal and tax evader, and ANYONE can be prosecuted on a whim. Plus there are governmental organizations which work outside of any legal framework, who can fine and imprison practically anyone they want, at their own discretion. The FTC is such an organization. If they suspect that people have been illegally "conspiring to form a cartel" (for example by discussing selling and pricing strategies on a forum such as this) they can swing into action and even if they don't win their case, they can easily bankrupt any individual or small to medium sized company they want to with legal bills. Sic semper tyrannis (thus always with tyrants).

cthoman · « **Reply #23 on:** November 20, 2010, 17:19 »

Quote from: lisafx on November 20, 2010, 16:12

I imagine the way they will enforce this is if you deduct those purchases on your tax return. If you don't take the deduction, then you will probably not have to bother filling out the 1099. But most of us probably deduct our business expenses. I know I do.

I meant enforcement from more of a manpower aspect. You have to assume that the majority of small businesses have some sort of expense deduction over $600 per year. Are all of those going to be reported? Are they going to chase after everyone who doesn't fill out the form, but keeps the receipts? Legal fees and time expenditures are a two way street. There doesn't seem a lot of logic in going after grandma's yarn expenses for her small crafting business. Unless the IRS has hired a significant amount of staff, I don't see why they would pursue these small cases. If I was to guess, I'd say they'd use all of this as another tool to raise red flags about suspicious behavior and not to chase down normal business expenses.

lisafx · « **Reply #24 on:** November 20, 2010, 18:16 »

Probably both of you (Cthoman and Pet Chia) are right that this will be too difficult to police. More likely, as you say, they will just use this as an additional charge against businesses they are auditing for other reasons.

Still, I would feel compelled to comply. It might be easy for the IRS to red flag anyone with over X amount of deductions to see if they have filed those 1099s.