PayPal reports certain transactions to the IRS, and the threshold for what gets reported has changed in recent years

Yes, PayPal reports to the IRS. If you receive payments through PayPal for goods or services, PayPal will send both you and the IRS a Form 1099-K if your transactions meet the reporting threshold. For the 2024 tax year, that threshold is $5,000 in gross payment volume. The threshold has been lower in past years — it was $20,000 and 200 transactions combined in 2021 and 2022 — and the IRS has signaled it may lower it further in future years.

PayPal is required to report because it is a payment settlement entity, a category that includes payment processors, digital wallets, and third-party payment networks. The IRS uses these reports to match against the income you report on your tax return. If you receive a 1099-K but do not report that income, the IRS will likely notice the mismatch.

Not all PayPal activity triggers a 1099-K. Personal transfers between friends, refunds you receive, and transfers from your own bank account do not count. Only payments you receive for business purposes — selling items, providing services, or any other income-generating activity — are reportable.

Key Takeaways

  • PayPal sends Form 1099-K to the IRS when you receive $5,000 or more in payment volume during a calendar year for goods or services.
  • You will receive a copy of the 1099-K by January 31 of the following year, and the IRS receives a copy at the same time.
  • Personal transfers, refunds, and money you transfer from your own bank account do not count toward the reporting threshold.
  • The IRS matches 1099-K reports against your tax return, so you should report all income even if you do not receive a form.

When PayPal sends a 1099-K to the IRS

PayPal generates a 1099-K when your account receives $5,000 or more in gross payment volume during a single calendar year. "Gross payment volume" means the total dollar amount of all transactions, before any refunds, fees, or chargebacks are subtracted. If you receive $4,999, you will not get a 1099-K. If you receive $5,001, you will.

The form covers only payments received for business purposes. This includes selling physical goods on eBay or Facebook Marketplace, providing freelance services, running a small business, or receiving payment for any work or product. It does not include personal transfers — for example, if a friend sends you $500 to split a dinner bill, that does not count.

PayPal mails or makes the 1099-K available to you by January 31 of the year following the transaction year. The IRS receives its copy on the same schedule. You should check your PayPal account or your tax records by late January to see whether a form was issued.

What transactions do not trigger a 1099-K

Several types of PayPal activity are excluded from 1099-K reporting. Personal transfers — money sent between friends or family members with no goods or services involved — do not count. If someone reimburses you for groceries or sends you money as a gift, PayPal does not report it.

Refunds you receive are also excluded. If you sell an item and the buyer returns it for a refund, that refund does not add to your reportable income. Similarly, if you receive a refund from a merchant or service provider, it does not count.

Transfers from your own bank account to your PayPal account do not count as income. You are moving your own money, not receiving payment. The same applies to transfers between your own PayPal accounts or to money you withdraw from PayPal back to your bank.

Payments that are later reversed due to disputes, chargebacks, or fraud are also excluded from the 1099-K total, though the initial transaction may have been counted before the reversal occurred.

How the 1099-K threshold has changed

The $5,000 threshold is recent. In 2021 and 2022, PayPal reported transactions only if you received $20,000 or more AND completed at least 200 separate transactions in the same year. Both conditions had to be met; hitting one without the other meant no 1099-K.

The IRS lowered the threshold to $5,000 starting with the 2023 tax year, meaning far more people now receive a 1099-K. The agency has proposed lowering it further to $600 in future years, though that change has not yet taken effect and the timeline remains uncertain.

If you received a 1099-K in a previous year under the old $20,000 threshold, you may not receive one this year even if your income is higher, straightforward because the threshold is now lower and more people cross it. Conversely, if you did not receive a form last year, you may receive one this year if your income exceeds $5,000.

What to do if you receive a 1099-K

When you receive a 1099-K, check it for accuracy. Verify that the gross payment volume matches your records. If PayPal reports $7,500 but you only received $6,200 in legitimate business income, the form may contain an error — perhaps it includes a personal transfer or refund that should not have been counted.

If you find an error, contact PayPal and ask them to issue a corrected form. You will need to provide documentation showing why the amount is wrong. PayPal can then file a corrected 1099-K with the IRS, and you will receive a corrected copy as well.

Report the income from the 1099-K on your tax return. If the form shows $7,500, you should report at least $7,500 in income from that source. If your actual income was lower because of refunds or chargebacks that PayPal did not subtract from the gross total, you can explain the difference in your tax filing or in supporting documentation.

If you did not receive a 1099-K but you did receive business income through PayPal, you should still report that income on your tax return. The IRS expects you to report all income regardless of whether you receive a form.

What happens if your income does not match the 1099-K

The IRS receives a copy of every 1099-K that PayPal issues. The agency uses automated matching to compare the income reported on your tax return against the 1099-K on file. If you report $3,000 in income but PayPal reported $7,500, the mismatch will be flagged.

A mismatch does not automatically trigger an audit, but it does increase the likelihood of IRS contact. The agency may send you a notice asking you to explain the difference. You can respond by showing that some of the PayPal income was a personal transfer, a refund, or a transfer from your own account — anything that should not have been counted as business income.

If you cannot explain the difference or if the IRS determines you underreported income, you may owe additional tax, interest, and potentially penalties. The best approach is to report all business income you receive, whether or not you get a 1099-K.

Frequently Asked Questions

Do I have to report PayPal income if I did not get a 1099-K?

Yes. You must report all business income on your tax return, regardless of whether PayPal issued a 1099-K. The form is a record for the IRS, not a requirement for you to report income. If you received $3,000 through PayPal and the threshold was not met, you still owe tax on that $3,000.

What if PayPal included a personal transfer on my 1099-K by mistake?

Contact PayPal and provide evidence that the transaction was a personal transfer, not business income. PayPal can issue a corrected form. You can also explain the error on your tax return or in correspondence with the IRS if they question the amount.

Does PayPal report to the IRS if I only receive money from friends?

No. Personal transfers between friends or family do not trigger a 1099-K. PayPal does not report these transactions to the IRS because they are not business income. However, if the IRS suspects the transfers are actually business income being disguised as personal transfers, they may investigate.

Can I deduct PayPal fees from the income on my 1099-K?

The 1099-K reports gross payment volume before fees are subtracted. You can deduct PayPal fees as a business expense on your tax return, but the 1099-K itself will not reflect that deduction. Report the gross amount from the form and then claim the fees separately as an expense.

What if I dispute a charge and PayPal reverses it after the 1099-K is issued?

If a reversal happens in the same tax year, PayPal should adjust the 1099-K before sending it to you. If the reversal happens in a later tax year, it may appear on next year's form. Keep records of all reversals and chargebacks so you can explain them if the IRS questions your income.