What Canadians Need to Know About the New U.S. Tax Regulations

Recently, there have been some questions regarding changes in U.S. tax reporting requirements that has prompted PayPal to reach out to customers about transactions involving the sale of goods and services.

Under these new U.S. tax reporting requirements, PayPal will be required to share with Internal Revenue Service (IRS) goods and services transactions made by customers with $600 or more in annual gross sales on 1099-K forms. Previously, a 1099-K was only required when a user received more than $20,000 in goods and services transactions and more than 200 goods and services transactions in a calendar year.

Q: Does this apply to me if I’m Canadian and selling to the U.S.?

If you are not a U.S. taxpayer, citizen, resident, nor operating a PayPal account on behalf of a U.S. entity, you may not be subject to Form 1099-K requirements.  PayPal may ask you for certain information to verify your non-U.S. status.

Q. What do I need to do to verify my non-US status?

Once you near or reach $600 in goods and services transactions, PayPal will connect with you to ask if you are required to pay taxes in the U.S. If you are unsure of the answer, please consult with an accounting professional.

If you are not required to pay taxes, please click on “confirm your tax information.” There you will be asked to fill out a form that will certify your non-US status.

If you are required to pay taxes, PayPal will ask you for tax information so that we can remain compliant with our regulatory requirements and share those details with the IRS.

Q: What if as a Canadian merchant, I collect payments in a USD bank account?

PayPal has typically required Canadian sellers to convert their currency to CAD before withdrawing the amount or to transfer the funds to a U.S.-domicile account. If funds are being transferred to a U.S.-domicile account, the account holder is responsible for checking their obligations to U.S. tax laws.

Q: I’ve confirmed I need to pay taxes in the U.S. Now what?

The 1099-K change took effect January 1, 2022. PayPal will be required to provide customers with a 1099-K form if they receive $600 or more in goods and services transactions during the 2022 tax year.

This means you will need to take into account the Threshold Change with your Tax Year 2022 filings.

This new Threshold Change is only for payments received for goods and services transactions, so this doesn’t include things like paying your family or friends back using PayPal for dinner, gifts, shared trips, etc.

Q: What is a Form 1099-K?

Form 1099-K is an IRS informational tax form used to report payments received by a business or individual for the sale of goods and services that were paid via a third-party network, often referred to as a TPSO or credit/debit card transaction. The IRS requires TPSOs, such as PayPal, to issue a Form 1099-K, which shows the total amount of payments received from a TPSO in the calendar year. Taxpayers should consider this amount with their tax advisor when calculating gross receipts for their income tax return.  For more information, visit the IRS website here.

Q: What is considered a Goods and Services payment with PayPal?

PayPal offers a way for customers to tag their peer-to-peer (P2P) transactions as either personal/friends and family or goods and services by choosing the appropriate category for each transaction. Users should select Goods and Services whenever they are sending money to another user to purchase an item, like a couch from a local ad listing or concert tickets, or paying for a service. These transactions may be eligible for coverage under PayPal’s Purchase Protection Program.

You can find out more on PayPal Goods and Services transactions here. Terms and conditions apply*

Q: Is the 1099-K Threshold Change specific to PayPal?

No. This is industry wide for all Third-Party Settlement Organizations (TPSOs) that you may use to accept payments for the sale of goods and services. This change impacts every payment settlement entity and TPSO that you might use to transact for goods and services, not just PayPal.

Q: What do I need to do in 2022 when the 1099-K Threshold Change takes effect? Is there a deadline to submit the information?

You may notice that in the coming months we will ask you for your tax information, like a Social Security Number or Tax ID, if you haven’t provided it to us already, in order to continue using your account to accept payments for the sale of goods and services transactions and to ensure there aren't any issues as these changes take effect in 2022. This helps us meet our obligations to the IRS and providing the information in a timely manner ensures that you will be able to continue using your account and access PayPal features and services.

For the 2022 tax year, you should consider the amounts shown on your Form 1099-K when calculating gross receipts for your income tax return. The IRS will be able to cross-reference both our report and yours.

Q: How does this 1099-K Threshold Change impact how I use PayPal?

This change should not impact how you use PayPal. You can still continue to use the PayPal platform as you do right now, and the benefits that are offered by sending money via our goods and services P2P feature – including Purchase Protection and Seller Protections on eligible transactions. 

Q: What information do I have to provide to PayPal? What do I have to do to ensure I remain compliant?

In the coming months, we may ask you to provide U.S. tax information like your Employer Identification Number (EIN), Individual Tax ID Number (ITIN) or Social Security Number (SSN), if you haven’t provided it to us already. For background, generally businesses use an EIN, while sole proprietors and individuals will use an ITIN or Social Security Number.

Q: Where can I find more information?

Here are some further helpful resources if you wanted to read more:

Disclaimer: PayPal does not provide tax advice. This content has been prepared for general informational purposes only and is not intended to be relied on for tax advice. For questions regarding your specific circumstances, you should consult with a tax advisor.


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