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September 21, 2022

Does PayPal Report to the IRS on Friends and Family Transactions?

You might be wondering whether PayPal reports to the IRS on Friends and Family transactions. The short answer is no, PayPal does not report these types of transactions to the IRS. However, that doesn't mean that you shouldn't report them yourself. Here's what you need to know about reporting Friends and Family transactions on your taxes.

What Are PayPal Friends and Family Transactions?

Friends and Family transactions are transactions between individuals that are not for business purposes. These types of transactions are processed through PayPal's Personal Payment system. When you send a personal payment, you can choose to use your PayPal balance, your bank account, or a credit or debit card. You can also choose to pay using PayPal Credit.

If you're receiving a personal payment, you can choose to have the funds deposited into your PayPal balance, sent to your bank account, or received as a check. Personal payments are free to send and receive in the United States.

What Are Business Payments?

Business payments are payments made for goods or services. Business payments are processed through PayPal's Merchant Services system. When you send a business payment, you can choose to use your PayPal balance, your bank account, or a credit or debit card. You can also choose to pay using PayPal Credit.

If you're receiving a business payment, you'll be charged a fee of 2.9% + $0.30 per transaction in the United States.

What Is PayPal Credit?

PayPal Credit is a line of credit that gives you the flexibility to pay for your purchases now or pay over time. With PayPal Credit, you get six months of special financing on purchases of $99 or more every time you shop with PayPal. Plus, there's no annual fee and no interest will accrue if you pay off your balance in full within six months.

How Are Friends and Family Transactions Taxed?

Personal payments are not subject to taxes in the United States; however, business payments are subject to taxes. If you're receiving a personal payment, you don't need to worry about paying taxes on the transaction. However, if you're receiving a business payment, you'll need to report the income on your taxes as well as any associated expenses. Be sure to keep good records so that you can easily track your business income and expenses come tax time.

To summarize, Friends and Family transactions processed through PayPal are not reported to the IRS; however, this doesn't mean that you shouldn't report them yourself come tax time. If you're receiving a personal payment, you don't need to worry about paying taxes on the transaction; however, if If you're receiving a business payment processed through PayPal's Merchant Services system,"]you'll need to report the income on your taxes as well as any associated expenses. Be sure to keep good records so that"]you can easily track your business income and expenses come tax time.

Jacques Potts - Sr. Marketing Manager at Ledgible and experienced financial author, marketer, and crypto expert. His work has been featured on The Street, Project Serum, FirstTrade, and Invstr.
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