Online Sellers Face Additional IRS Form in New Tax Year
If you sell your wares in an online marketplace like Ebay or Amazon, you might see an additional IRS form in the mail in early 2012. Beginning with the 2011 tax year, merchants with more than 200 transactions and $20,000 in annual sales — the “and” is crucial, as both thresholds must be exceeded — will receive a 1099-K form from the site where they do business. The site will also be required to report the information to the IRS.
If you dig into the tax code a bit — always a treat — it’s actually the site that processes payments and sends you your money that’s on the hook, and not necessarily the marketplace. If you sell on Ebay, for example, and accept payments via Paypal (an Ebay subsidiary), it’s the latter that will come calling for your taxpayer information and issue a 1099-K when you exceed the IRS thresholds.
Half.com (another Ebay subsidiary) sent an email recently to its sellers announcing the coming change. It said the site would consider multiple accounts as one for the purposes of transaction and sales volume. The email also indicated that Half.com will ask all sellers, regardless of volume, to provide their Taxpayer Identification Number (TIN) or Social Security Number (SSN) via the My Account section in the near future. A portion of the email reads:
“If you don't provide us with your TIN/SSN before you meet the thresholds, payments to your account could be frozen, we may be required to withhold taxes from your payments, your listings could be removed, and your ability to sell on Half.com could be suspended, in addition to other consequences. We want to avoid any disruption to your selling status, so please make sure you give us your TIN/SSN when we request it.”
A recent post at the AuctionBytes Blog clarified that Paypal, on the other hand, has no plans to ask merchants for their taxpayer info unless they exceed the IRS thresholds.
Businesses that already keep good records of their online sales and report them appropriately don’t really have much to worry about here. The chief concern could be that you’ll need to share sensitive information — your TIN or SSN — with businesses such as Paypal or Amazon if you exceed the IRS thresholds. Although those sites invest heavily in information security, there’s always the possibility of a breach. Be wary of online scams that attempt to capitalize on the new regulations. Half.com noted that you should not provide your TIN/SSN by phone or email, but rather only on their secure site.
The other potential thorn here is simply one of paperwork. With the broader 1099 rule — which will require businesses to report most payments in excess of $600 beginning in 2012 — still on the books in spite of recent attempts to repeal it, you stand to have quite a few more tax forms to keep organized for filing purposes.