Mistakes happen, but when they are made on tax reports filed with the IRS, it’s important that they are corrected to ensure you don’t overpay or potentially lead to an audit.
A reader told us that when PayPal issued him a form 1099-K last month, it was incorrect. “My gross receipts were overstated by 26% (!), which is a LOT of money to explain away to the IRS.”
The seller immediately contacted PayPal to report the errors, but told us, “No one at PayPal would acknowledge that errors were made, and stated that they were just reporting receipts as required.”
“I showed them where they treated the exact same type of receipts in 2 entirely different manners, but no, that didn’t matter. They finally agreed to submit it to their contracted Tax Form provider for review. A week later, I got back a message that everything looked to be in order, and that no change or revision would be forthcoming.”
However, the seller later received the following message from PayPal that it would be issuing a revised 1099-K:
Recently, Internal Revenue Service (IRS) 2019 Form 1099-K was made available to you via U.S. mail. PayPal is required to issue the tax form to you if your account activity meets the tax reporting threshold in order to comply with tax reporting requirements under IRC 6050W.
We will reissue a corrected 2019 Form 1099-K to you which will include corrected amounts. We expect this correction to be completed over the next 2 weeks.
If the correction of your 2019 Form 1099-K causes your payment transactions to be below the tax reporting threshold, then we will issue you a corrected 2019 Form 1099-K showing no ($0) reportable transactions.
We will ensure that corrected 2019 Form 1099-K is reported to the IRS as well as state taxing authorities.
If you have questions regarding this correction, please contact us to speak with a PayPal representative. You may also send an email to taxdocumentupload@paypal.com.
Thank you for your continued business.
The seller believes whatever problem caused the PayPal error on his Form 1099-K may impacted other PayPal customers. “I feel bad for those who submitted their returns to the IRS with the wrong info, and now have to chase that down to show that their explanation is supported by new data.”
The reader also wrote, “Nowhere in the letter does it explain why there is a need for correction, any type of “my bad”, no apology for having provided the incorrect information originally, etc. Just news that you will be getting a new form.”
The lesson for sellers is to check the 1099-Ks you receive from payment processors – they are not infallible.
My Paypal 1099 is always several hundred dollars above what my software tells me I earned. I just file my taxes based on my software and move on.
Mine is way off too. But actually, they never gave me a 1099 for 2019, or 2018. For 2018 I called them several times about this they said it would be posted in a week or 2. But after 4 phone calls I gave up.
But, according to paypal, my sales were almost 205k. I actually come up with 173k not 205k. What a mess.
I did notice in ebay, for a while the total of the sales tax collected was wrong. It seems for a time if the item sold had free shipping the sales tax total was correct. If the item sold had calculated shipping the sales tax total only showed the sales tax collected on the item price only. It didnt add in the sales tax collected on the shipping. This is what is troubling about managed payments. This is what to expect?
In seller hub you have one sales total. With seller hub sales details report you have another number. In the sales report plus you have another number…..3 different numbers. Why?
This BS of calculating sales tax differently 3 times throughout the year is just that BS. Why was, and is it still added to the sales total? Why can we just not run the sales reports and use them. Why do we have to do daily weekly monthly journals. And they expect me to be happy about managed payments? More crap and variances to weed though and figure out. I am sure that will change a half dozen times how everything is calculated also. So more unneeded accounting work. This is the computer age, there is no need to do accounting the old fashioned way. But with ebay, they cant do anything right.
It’s pretty clear that your ENTIRE sale total is posted to the 1099K. This is the amount that is sent to the merchant payment system that bills your customer. This is posted on PayPal.
It’s up to you to go through your sales and reports and deduct all of the amounts that you then post as business expenses.
I try to verify everything from both PayPal & Etsy before I file. (It’s worse with Etsy, as they keep the ales tax, but do not provide any data on totals or proof.) It’s gotten so bad with Etsy that I’m bailing out of that marketplace venue.
PayPal is simply a vehicle you use to invoice your customers & have the payments processed. And that is all you can expect from them. I’ve been checking other types of invoicing systems and you pay additional monthly costs for using them, as well as fees.
The problem lies in the fact that it’s being reported on their 1099s (a federal government document) as their own income. Yet, they aren’t submitting the sales tax themselves to deduct it on their own tax forms. So, the IRS sees a discrepancy that the seller cannot account for via any government document.
Hi there. You seem knowledgeable in regards to pay pal and 1099s. Hopefully you can help me understand. I have Run the monthly reports to compare. What all do they use to calculate them? Is it only revenue? It appears they minus any expenses I have Debited to the account via my pay pal business credit card. I do not want to claim expenses twice.
Your 1099 should include ALL sales receipts BEFORE expenses as you deduct business expenses on your Schedule C. I’m not sure which monthly reports you’re referring to or which venue you’re selling on, but it doesn’t matter.
If your GROSS receipts don’t match what’s on the 1099, then you have a problem. Your other problem is how to account for the sales tax money that was taken from you and paid to the states. Since you didn’t pay the tax yourself, you cannot deduct it on your Schedule C as sales tax paid because you have no State government record showing anything related to sales tax.
So, where do sellers account for the extra money they never actually saw?.
An afterthought…I’m not sure why they would be deducting anything from your gross receipts. A 1099 only accounts for total monies paid to you, not debit card or any other expense.
So, for each sales transaction, the total amount received MINUS the sales tax charged by the marketplace is what should be accounted for on your 1099. Unfortunately, it would seem the marketplaces are not reporting that you never received that sales tax money, so it’s getting included as part of your income when it shouldn’t be.
Of course, any sales tax you paid directly to a state can be accounted for via the sales tax forms you submitted. It’s just the money the marketplace takes to pay the sales tax that should NOT be included on your 1099 because THEY have the government documents to show what was paid towards sales tax.
Hope that better answers your question.
paypal gross sales Does Not consider Returns! thats why the figures for eBay and paypal are always WRONG.
Actually, you’re the one who’s supposed to account for returns on your Schedule C. Go to irs.gov and download a copy of the tax guide that discusses accounting for losses/returns (sorry, don’t know the publication number off the top of my head).
I tried to warn everyone about this. If they’re not showing where the sales tax was deducted from the transaction’s receipts, keeping them separate from your sales receipts since you’re not considered by the state as the merchant of record, then they are over-inflating your income while deflating their own. The perfect scheme for evading taxes, wouldn’t you say?
By the way, it’s not PayPal’s fault. They’re only reporting what was reported to them. If they’re not being told by the marketplaces that a portion of those receipts does not belong to you, then how are they possibly going to know?
It’s a matter of programming what’s necessary to account for that. Whether that’s the marketplace’s sole responsibility or something they need to work on together, it certainly needs addressing.
Of course, that would also mean making the marketplace responsible for the fees on that portion of receipts. Yep, small business owners are definitely being targeted by every state partaking in this fiasco because they’re only making it possible for these marketplaces to pull what they’re pulling — and possibly even get away with it, claiming it’s the states’ faults while the states point the finger at them. Another episode of Romper Room, anyone?