Due to new IRS rules, PayPal has started asking users to provide their tax ID number, which is either your Social Security number, Individual Tax Identification Number or your Employer Identification Number. PayPal says it will use your tax ID number to send tax Form 1099-K to you and the IRS when the payments you receive exceed both of these milestones in a calendar year:

  • $20,000 in gross payment volume for goods and services
  • 200 payments

So for most occasional PayPal users, this change won’t be applicable, but you’ll still need to enter your tax ID just in case. Although, it’s important to note that the new law requires PayPal’s non-US subsidiaries to comply so any non-US account holders may need to certify their non-US status and address. If you don’t receive an email from PayPal asking for this, you’ll be prompted with the following message when you sign into your account.

Screen shot 2011 08 16 at 1.26.22 PM 520x27 New IRS rules require PayPal to report sales information

If you have multiple PayPal accounts, you must submit your Tax ID number for each account.

Starting in 2011, this new law requires all US payment providers, including PayPal, to report sales information to the IRS about certain customers who receive payments for the sale of goods or services. The rule can be found under the Internal Revenue Code (IRC) Section 6050W, and applies only for sales on or after January 1, 2011. First reports will be sent to the IRS in early 2012. Other companies affected include eBay.comAmazon Marketplace and Google Checkout, as well as platforms like Dwolla and Venmo.

It is currently required by law to report all of your online earnings regardless of the new law, but it will help the IRS to close the gap on unreported online earnings. In an interview with the Examiner, David Montague, founder and President of The Fraud Practice says that the proposed provision could deliver tax revenue in the amount of $9.529 billion over 10 years. According to the Examiner, eBay.com alone attracts over 97 million U.S. users and over $25.2 billion of merchandise has been sold and that more than three-quarters of a million people rely on eBay.com as their primary or secondary source of income.

If you don’t provide your tax ID number, PayPal says it may place limitations on your account so that you won’t be able to receive funds or close your account. The limitations will be removed after your provide your tax ID number. I have to admit, giving PayPal my social security number felt slightly uncomfortable. With this new law in effect, the wild west of the Internet just got a little tamer.

For related reading, check out: 8 Awesome Ways to Pay with Your Phone.