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Author Topic: PayPal 1099s coming back to haunt us  (Read 7187 times)

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« on: September 14, 2014, 12:07 »
+2
I heard from a microstock photographer friend the other day that he was contacted by the IRS that they believe he underpaid his taxes and owes over $20k. The basis for this claim is the 1099 form that PayPal started issuing a couple of years back. Sort of like I feared might happen, even if you claim your income properly and completely from each individual stock agency, this PayPal 1099 gives the IRS the impression that you earned twice as much as you actually did from the companies that pay out via PayPal.

So for example, Shutterstock pays you $1,000 in a year, they issue a 1099 stating they paid you $1,000, you claim that in your income taxes, and you legally are doing everything right. But then the IRS gets the PayPal 1099 and as far as they believe, you never declared that $1,000 in income. Because they see it as coming from PayPal.

Anyone know how to avoid this problem? I've ignored the PayPal 1099s because I believed them to be basically erroneous and borderline fraudulent (PayPal doesn't pay me, agencies do, so I have no idea how they can issue a 1099). But obviously ignoring these PayPal 1099s leads to problems later. And I sure as heck don't want to pay double taxes on all of my income that goes through PayPal.

I'm seriously considering not taking payments through PayPal anymore and requesting checks whenever possible.


« Reply #1 on: September 14, 2014, 12:51 »
0
In Canada I had a similar problem with Istock. I claimed the income and then a month after taxes deadline Istock sent T5's with the statement of income.  I ignored it, but Rev Can adjusted not only my taxes but my husband's also and sent us invoices for overdue taxes and penalties.  All I had to do is phone (and sit on hold for half a day), print and complete a form (sorry Canadians, it was from another computer).   They explained that in future tax years, if this happens to include this form in with my package that I remit.

I know... different country.. different rules. But if Paypal sends the 1099's during your tax season, surely there must be a similar form from IRS that you complete and remit with your tax filing?  You really can't ignore forms like this, the gov always gets a duplicate and may work slowly - but you will surely hear from them.

Uncle Pete

« Reply #2 on: September 14, 2014, 13:27 »
+4
Ask an accountant, but I'd say, include the PayPal K-1099 and explain it's a duplicate of the 1099s from agencies.

PayPal will only submit 1099-K forms for those sellers that meet the BOTH 200 transactions and $20,000 income.

Just for anyone reading this so the conditions are clear.

I don't do my own taxes, not even using tax software. With the schedules and depreciation of equipment, multiple income sources, I'm better off paying a professional. I have figured them for free and every time, I paid less than what it cost me for an accountant+taxes, compared to using TurboTax.

« Reply #3 on: September 14, 2014, 14:32 »
0
I never gave them the info, and I don't depreciate anything, and I've had no issues.

« Reply #4 on: September 14, 2014, 17:21 »
+1
Mike, do you have skrill where you live?  That might solve your problem.

Tror

« Reply #5 on: September 15, 2014, 02:58 »
0
http://www.payoneer.com/

istock, 123rf, Dreamstime, veer, deposit, Pond5, ... most sites offer already payoneer. If they do, it does not make much sense stick with a shady company like paypal.

« Reply #6 on: September 15, 2014, 16:48 »
0
Mike, do you have skrill where you live?  That might solve your problem.

Looking at them right now. Does Skrill submit any info to the IRS?

To be honest, I'm a little skeptical right now. After just signing up and logging in I'm seeing promotions for online gambling. Is Skrill legit?

Valo

« Reply #7 on: September 15, 2014, 16:51 »
0
How can a government charge you twice if you have proof you paid taxes. This is not a PayPal issue, PayPal is following the law. Our government is the issue here, in my opinion.

« Reply #8 on: September 15, 2014, 17:12 »
+1
How can a government charge you twice if you have proof you paid taxes. This is not a PayPal issue, PayPal is following the law. Our government is the issue here, in my opinion.

Are they? I'm not sure. How can PayPal legally issue 1099s when they don't actually pay us? It's like my bank issuing a 1099 for any checks I deposit. They didn't write those checks, nor did PayPal pay me the funds they're claiming I earned from them on these forms.

Valo

« Reply #9 on: September 15, 2014, 17:49 »
0
Makes sense, but still I dont think its a PayPal only thing.

This explains more https://blog.etsy.com/en/2012/the-paypal-1099-k-dont-fear-it/

« Reply #10 on: September 15, 2014, 23:36 »
0
Makes sense, but still I dont think its a PayPal only thing...

I have yet to hear of any other payment processing company issuing 1099s for money that they didn't actually pay out themselves. I'm still totally confused as to how any company can issue a 1099 for money that didn't actually come from said company. A 1099 is pretty basic. It is essentially a form that states that Company XYZ paid me $X,XXX. But PayPal didn't pay me anything. Shutterstock did, along with iStock, Dreamstime, Fotolia, etc.

To me, this seems almost fraudulent that PayPal is claiming to have paid me any amount of money.

Maybe it is a government thing more than a PayPal thing, probably with the IRS pressuring PayPal to better equip them to track all of that money changing hands on eBay and get their share of it. But it's too general of a tool for doing so. Maybe it helps to hold eBay sellers to the letter of the (tax) law, but for everyone operating outside of eBay, obviously including microstock and other businesses that process payments via PayPal, it is hugely flawed.

And even if it is a legit thing they're doing issuing these 1099s, I still don't want to support that. PayPal seems like just another big company screwing small businesses and independent workers. They don't care that they're putting the burden on us to prove that we did, in fact, already pay taxes on the money they claim to have paid us. Or that all of what they claim is taxable income actually is taxable. If you sold some junk from your basement on ebay, that gets lumped into this 1099 also.

I'm not interested in supporting what PayPal is doing. I'd rather work with another payment processor that won't screw me over down the road. Or just get checks.

« Last Edit: September 16, 2014, 00:01 by EmberMike »

« Reply #11 on: September 16, 2014, 00:21 »
+4
I am guessing the IRS pressured Paypal into reporting this - still, a 1099 doesn't seem like the right way to do it. I would hope that just explaining that the reported income from wherever was paid through paypal would be enough for the IRS though.

Uncle Pete

« Reply #12 on: September 16, 2014, 11:57 »
+3
Correct IRS ordered PayPal to do this. And it's not a 1099 it's a 1099-K http://www.irs.gov/uac/Form-1099-K,-Merchant-Card-and-Third-Party-Network-Payments

Also no one is paying twice, it's just reported to keep people from hiding transactions or income. File it with your taxes, and ignore the income. But people can't just ignore the form because they don't like it.

Repeating this part because it comes up over and over and some people don't understand you must have BOTH: PayPal will only submit 1099-K forms for those sellers that meet the BOTH 200 transactions and $20,000 income.

You need to make $20,000 on PayPal transaction and have 200 transactions. If you have 199 transactions and $40,000 they aren't required to report your earning.

How many people here are 200 transactions AND $20,000 in PayPal transactions? (do we need a poll?)  :)


I am guessing the IRS pressured Paypal into reporting this - still, a 1099 doesn't seem like the right way to do it. I would hope that just explaining that the reported income from wherever was paid through paypal would be enough for the IRS though.

« Reply #13 on: September 16, 2014, 12:25 »
0
...Repeating this part because it comes up over and over and some people don't understand you must have BOTH: PayPal will only submit 1099-K forms for those sellers that meet the BOTH 200 transactions and $20,000 income...

I think my new strategy is going to be to just stay under the reporting criteria and avoid these stupid forms altogether. There's not much I can do to stay under $20,000, but I certainly can stay under 200 transactions.

I'm moving some of my business over to Skrill, but apparently they do the same as PayPal, with the same 200/$20k criteria for IRS reporting.

Seriously considering switching to checks from some of the companies that allow that payment option. I don't care if I have to wait longer to get paid.

« Reply #14 on: September 16, 2014, 12:57 »
0
File it with your taxes, and ignore the income. But people can't just ignore the form because they don't like it.

I would say the problem is that they don't seem to report everything on it. So, it was less than my total income reported, but more than my stock income. What they are putting in or leaving out would probably take hours, days or more to resolve. I'm also not entirely sure where or if it is supposed inserted onto the tax form. Luckily, mine arrived after my taxes last year and they didn't send me one this year. Maybe, they have eliminated the practice of sending them out or just send them to the IRS.

Uncle Pete

« Reply #15 on: September 16, 2014, 13:46 »
+1
Maybe you didn't pass both qualifiers. And let me help. If you get a form, the IRS got a form.  :) They file electronically and have a mailing deadline of January 31st. It's not like the IRS gets a boatload of little scraps of paper to sort through. They get a database file, with your SS# and that's why the agencies and PayPal are so persnickety about ID and SS#s.

I worked for someone and the private contractor cutoff is $600, in other words I'd need to make $600 and one cent for them to be required to report.

Well the lady assured me that wouldn't so I work the three days and sure enough she reported it, so I had to pay taxes on the $600 which means - I would have made more, by only working two days! Talk about angry. I worked for nothing?

It doesn't matter what it says, it doesn't matter if people use it. I'm saying, include the 1099-K and stick a note on it, that it's not accurate and you are reporting all your income from the sources and their 1099s. Where the IRS gets twitchy is when people fail to report something.

They do not collect twice, like someone intimated. The IRS just wants to know that someone isn't making $20,000 from sources that don't report. eBay would be a good example. Also it's all sources, not just micro. You could be selling things on Craigslist, eBay, Amazon, plus Micro and maybe a contract that paid you on PayPal, they all count.

This isn't just about Microstock!

You should be in the resale business where I have to have tax exempt form from every customer, I have to send forms to many of them (even though I don't think I really need to) but because they pay me, I have to file that. Some send me 1099s, most don't. Total mess. I have to have a sellers permit, the EIDN and a tax exempt form for every one of my suppliers. Used to pay half the SS for employees and mandatory workmens comp. insurance.

I need to collect and file sales tax, by county for this state. There are numerous different rates, basic state, then some counties have an addition and for the stadium tax the adjoining counties get something and for the other stadium tax, those counties get a special added tax. 72 counties and every customer I need to know which taxes to charge and then... file that number for each appropriate county that they are in!

And other states are trying to get an internet tax, talk about That Sucks! I sell an antique toy on eBay and NY wants to get taxes on that. I ship to Colorado and they want a bite. Can you imagine trying to keep records and collecting for all of the states? Impossible and invasive.

So one little 1099-K from PayPal is hardly some big issue.

File it with your taxes, and ignore the income. But people can't just ignore the form because they don't like it.

I would say the problem is that they don't seem to report everything on it. So, it was less than my total income reported, but more than my stock income. What they are putting in or leaving out would probably take hours, days or more to resolve. I'm also not entirely sure where or if it is supposed inserted onto the tax form. Luckily, mine arrived after my taxes last year and they didn't send me one this year. Maybe, they have eliminated the practice of sending them out or just send them to the IRS.

« Reply #16 on: September 16, 2014, 14:01 »
0
So one little 1099-K from PayPal is hardly some big issue.

Actually, what you described is very similar to what it would take to decipher the 1099-K. Basically, going through Paypal one customer at a time to see if that bill was represented on it. Otherwise, you are really just ignoring it.


Uncle Pete

« Reply #17 on: September 16, 2014, 14:11 »
0
Yes, it's more of a nuisance than anything else. I'd just report it as duplication of other 1099 earnings.

Back to what I said in the first post. Ask An accountant. There's also an IRS help line and I'm sure that NOW would be a great time to write an email question, not in April. LOL

So one little 1099-K from PayPal is hardly some big issue.

Actually, what you described is very similar to what it would take to decipher the 1099-K. Basically, going through Paypal one customer at a time to see if that bill was represented on it. Otherwise, you are really just ignoring it.

Valo

« Reply #18 on: September 16, 2014, 15:32 »
+2
Uncle Pete made it very clear, yet people still throwing toys from the pram.  :o

Calling PayPal shady when it is not even a PayPal thing. Shady because they follow orders from the IRS, or shady because you can no longer be shady?  8)

« Reply #19 on: September 16, 2014, 15:42 »
0
Uncle Pete made it very clear, yet people still throwing toys from the pram.  :o

Calling PayPal shady when it is not even a PayPal thing. Shady because they follow orders from the IRS, or shady because you can no longer be shady?  8)

No toys being throwed.  This guy had problem with revenue dept. Over confusing new tax law making paypal do 1099 for money already accounted for.  That don't happen to me but if it did I would be upset too.

« Reply #20 on: September 16, 2014, 16:20 »
+1
Uncle Pete made it very clear, yet people still throwing toys from the pram.  :o

Calling PayPal shady when it is not even a PayPal thing. Shady because they follow orders from the IRS, or shady because you can no longer be shady?  8)

First, it's not so clear. I've read tons of stuff on this issue in recent days, much of it from tax pros, and many of them giving conflicting advice. So if tax pros can't agree on what the proper course of action is, I think it's safe to safe that some additional clarity is needed.

Second, PayPal is shady for so willingly complying with this. Just because the IRS says they need to issue 1099s doesn't mean that PayPal can't put up a fight. Issuing these forms is wrong, plain and simple. Even if you submit the form in your tax return, people are saying to put a note in there saying that the PayPal 1099-K is wrong. This whole thing is a joke, and PayPal knows it. And yet they still just happily send out these forms without question.

So although I can certainly see how the IRS is really at fault here to institute such a flawed method of collecting income data for PayPal users, PayPal isn't in the right just because they're doing what the IRS is asking. They should be trying to fix this, working with the IRS to create a better system that doesn't double-report income and put the burden of proving that the proper amount of taxes were paid on the individual and small business owner.

Lastly, I resent the implication that I'm trying to do anything shady here. I pay my taxes, I keep clear and accurate books, and I work with an accountant to make sure that I'm paid up with what I owe every quarter. I'm looking to not run afoul of the IRS, something that I can clearly see happening in the future because of the 1099-K form issued by PayPal. I really take offense to the suggestion that I'm attempting to do anything nefarious. That's a pretty low comment on your part there.


Valo

« Reply #21 on: September 16, 2014, 16:43 »
+1
I am not here to argue. Someone here called PayPal shady, which is an unfounded accusation. I didn't call you shady. My comment was more tongue in cheek than anything else.  I have read many sources saying the form is no issue, yet you insist it is. I really have nothing more to add. I am sorry it is causing you issues, I hope you find another way to get paid without the hassles.

Valo

« Reply #22 on: September 17, 2014, 11:50 »
0
Dear Valo,

Thank you for contacting Skrill.

We issue a 1099-K form for all merchants who exceed $20'000 in total annual volume or their transactions are 200 or more in number.

Should you require any further assistance from us or in case any queries should arise, please do not hesitate to get in touch with us again instantly.

Email: help-business@skrill.com
 
With kind regards,
Skrill Merchant Services
-------------------------------------------------
If PayPal is shady for issuing a 1099-K then so is Skrill and all other payment service providers in the US.

There is not one mention of a 1099-K procedure on the Skrill website. The only way to get this information was through their customer support.

They even got it wrong as it is 20K AND 200 txn, not OR.

« Reply #23 on: September 17, 2014, 13:06 »
-1
If PayPal is shady for issuing a 1099-K then so is Skrill and all other payment service providers in the US...

Which other payment service providers issue 1099s? I'm not even sure that Skrill does. I can't find a single mention online of someone ever receiving a 1099 from Skrill.

...There is not one mention of a 1099-K procedure on the Skrill website. The only way to get this information was through their customer support...

Actually it's here: https://www.skrill.com/en-us/siteinformation/privacy-policy/

But again, I haven't been able to verify that they actually do report anything to the IRS or that anyone gets 1099s.

Any Skrill users here ever gotten the 1099-K form?

Valo

« Reply #24 on: September 17, 2014, 13:10 »
0
Well, their CS just confirmed they do! Good find, yesterday that didnt come up when I searched the site.


 

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