PayPal Account Holders Reported to IRS: What You Need to Know

3 min
Published on: 06-04-2023 Last modified on: 13-06-2023


PayPal reports info to IRS for account holders who sell goods/services. Thresholds met requires verification of US tax status. Non-US holders may need to complete FATCA requirements. PayPal collects customer info for reporting purposes. Proper documentation and accurate info avoid penalties and enable smooth transactions.

If you are a PayPal account holder you may be required to verify your U.S. tax status with PayPal. The U.S. Internal Revenue Service (IRS) mandates that all payment processors, including PayPal, provide information to the IRS regarding account holders who receive payments for the sale of goods or services.

To satisfy its reporting obligations, PayPal requires account holders who approach the applicable thresholds ($20,000 and 200 transactions) set by the IRS to verify their U.S. tax status by completing a certificate of foreign status or providing a U.S. taxpayer identification number (TIN).

If you are required to provide your taxpayer status, you will be notified via PayPal. You should read and review the certification or form before signing it with either your electronic or written signature. False statements may lead to penalties under applicable law. If you have any questions or concerns regarding the form, it may be beneficial to engage tax counsel.

Paypal FATCA

But that’s not all. If you’re a non-U.S. PayPal account holder, you may also need to complete FATCA (Foreign Account Tax Compliance Act) requirements. FATCA is a U.S. law designed to combat tax evasion by U.S. persons (both individuals and entities) that fail to report income related to non-U.S. accounts.

To use PayPal services, non-U.S. PayPal account holders need to complete FATCA requirements by answering a series of questions and possibly providing documentation. PayPal also reviews existing customer records to ensure they’ve properly documented their status as a U.S. or non-U.S. person for FATCA purposes. In some situations, PayPal may request more documentation from a customer.

If PayPal determines that an account is reportable under FATCA, they must report information to the local tax authority or the IRS if the applicable account balance has reached a certain threshold. The reportable information generally includes customer information such as name, address, tax identification number (“TIN”), and account balance information. FATCA requires reporting on an annual basis in most jurisdictions.

So, what FATCA documentation does PayPal collect and how can you provide it?

PayPal may need to collect your address and your U.S. or other tax ID number. For a business entity, PayPal may need to collect the following information:

  • Its country or region of incorporation
  • Its business type or classification under FATCA
  • A certification stating, among other things, whether the entity is or isn’t considered a Specified U.S. person” (as defined by FATCA)
  • Whether it has or doesn’t have substantial U.S. owners or controlling persons
  • If it does have substantial U.S. owners or controlling persons, the names and addresses of those owners or persons.

PayPal must collect the necessary information through documentation, such as a certification of non-U.S. status, a Form W-9 (Request for Taxpayer Identification Number and Certification) for U.S. entities or persons, or a Form W-8BEN/BEN-E (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting) for non-U.S. entities or persons.

In conclusion, PayPal account holders need to ensure they comply with IRS and FATCA regulations. By completing the necessary documentation and providing accurate information, you can avoid penalties and enjoy hassle-free PayPal transactions.

Americans Overseas

We, the founders of Americans Overseas, were born in the Netherlands and obtained our American nationality through our (American) mother. When we heard about this for the first time around 2013, we were in total disbelief (it can’t be true!), anger (how can they do this?), fear (am I going to get fined or pick up other problems?), and panic (what should I do?).

It is (unfortunately) true that there is an additional American tax levy. But there’s no information from the local government, and when approached, the consulate referred us to the IRS, and the IRS was impenetrable.

That’s why we started this initiative to help people from all over the world by providing proper information to avoid unnecessary panic and offering help free of obligation and free of charge. If needed, we have a network of affordable professionals (accountants) who can help you with your tax obligations.

If you have more questions about Paypal FATCA and the US tax obligation, you can contact us at Americans Overseas.


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Source: Paypal FATCA

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