Do you live somewhere other than America, are an American citizen and sell junk on eBay for the fun of it? Welcome to Section 6050W.
Under new rules added to the US Tax Code in January 2012, credit card processing companies must now collect and verify the tax identification number (TIN) and legal name associated with that number for each merchant customer.
Section 6050W of the US Internal Revenue Code now requires merchant-acquiring entities in the US such as American Express to document the status of any US or foreign business they settle transactions with….
The new law represents another effort by the US government to boost transparency and possible tax collection for Americans overseas.
More in Regional merchants face new US withholding tax [Caribbean News Now, Grand Cayman, Cayman Islands]
Well, that’s great, so how might IRC Section 6050W affect you? On this, PayPal writes:
PayPal will track the payment volume of your account(s) to check whether your payment volume exceeds both of these levels in a calendar year:
- $20,000 USD in gross payment volume from sales of goods or services in a single year
- 200 payments for goods or services in the same year
You may be asked to add your tax ID number, such as a Social Security Number (SSN) or Employer Identification Number (EIN), to your existing account(s), if you don’t already have one on file.
If you cross the IRS thresholds in 2012, PayPal will send Form 1099-K to you and the IRS for the 2012 tax year in early 2013.
So, if you live in China and sell 200 pencils to 200 customers for 200 Renminbi, add form 1099-K to the many other forms your expensive tax preparer will be delighted to fill out for you.
*I am a collector of antique telehones as a hhobbyd and belong to an association or this specific type of collectors. Some of the buy and sell antique phones as their primary, or even a casual secondary source of income and I am aware, from talking to them, how careful they must keep records, inciding their ebay and PayPal transactions to satisfy ,IRS audits. mEbay transactions are pretty much public record.
Form 1099-K is filed by the credit card or payment company, not by the person receiving the payment.
*Shadow Raider, that differs though from what PayPal writes. PayPal states that if a merchant using their service issues 200 invoices in one year, then the merchant will have to fill out Form 1099-K. At least, that’s how I understand what they wrote.
The phrase “like squeezing blood out of a turnip” comes to mind. 🙁
You got that right Em. 😉
*@Swiss
You did not read or accurately quote what PayPal said in its FAQ. Try again.
@All
§6050W is an extremely important piece of legislation because it represents another major advance toward what the US government seeks to achieve: total transparency and omniscience with respect to all transfers of money taking place within its “jurisdiction”.
“Jurisdiction” as Allison Christians points out in her Pepperdine paper essentially means “anything the state can get away with”.
Originally – in the same spirit as FATCAT – the proposed implementing regulations would have required every merchant on earth who accepted credit cards or used the services of other “payment settlement entities” to file a W-8BEN self-certifying their foreign residence and ownership if they wanted to avoid the 28% US withholding tax.
After a justifiable howl went up from US PSE’s who realized immediately that this would essentially force them to divest their foreign PSE subsidiaries or cease doing business abroad, the Treasury relented. (Merchant associations around the world were also none too happy about the IRS being in possession of revenue data that it might share with their domestic tax authorities.)
So now, if you will take the trouble to read the instructions to Form 1099-K – and I do not recommend it for anyone except desperate insomniacs – you will learn that a foreign business who uses a foreign PSE including the foreign subsidiary of a US parent PSE and has a foreign business address will never learn of the existence of Sec. 6050K much less ever see a 1099-K.
If, however, a foreign business uses a US-based PSE, they will have to do more than rely on their foreign address: they will also have to submit a Form W-8BEN to their US service provider certifying their foreign status. That will then be the end of it for them.
If a US person resident abroad who is self-employed or who, together with other US persons, controls a foreign business entity and only their foreign address is on file with their foreign PSE, neither the individual or the entity will ever see a 1099-K – unless they disclose their US status to their foreign PSE. In that case even the foreign PSE would be required to report the payments and/or withhold under §6050W.
Again, while this law is of little immediate significance to the vast majority of US persons or anyone else residing outside the USA, it is an important advance in America’s longterm policy of attaining total omniscience of every detail of its citizens’ economic lives.
It more than makes up for the set-back it experienced when Sec. 9006 of the Patient Protection and Affordable Care Act (Obamacare) raised such hackles everywhere across America that even the Democratics found themselves scrambling to repeal it. That section of the legislation – utterly unrelated to the health insurance provisions of the primary legislation – would have required EVERY business in the US to report all payments (by any means) for GOODS or services made during the course of a calendar year to any CORPORATE or non-corporate payee if the total payments to such payee exceeded $600. The payments would be reported on a Form 1099-MISC. Big Business just shrugged because the incremental costs to them would have been minor but for small businesses and sole proprietorships the costs would have been potentially ruinous. Just imagine a self-employed life insurance peddler having to fill out a 1099-MISC and send it to every oil company where he bought more than $600 worth of gas during the year.
Section 9006 was swiftly taken out behind the Capitol woodshed and given the ax.
*Todundsteuer, ok, I see. Thanks for the correction and the detailed explanation. 🙂
TodundSteuer wrote:
I don’t see why they don’t also install surveillance cameras everywhere in everyone’s businesses and homes. That would go a long way towards achieving omniscience.
Just another reason to renounce / relinquish.
One other thing to keep in mind that under FATCA, W-8 forms for foreign entities will become a lot more complicated. In particular, Part 25 of the proposed W-8BEN-E requires you to give information on “substantial U.S. owners of passive non-financial foreign entity”. The IRS of course already has ownership information on US expats’ local companies from Form 8865 or 5471; what’s new is that you’ll have to supply that information to third parties as well.
Or… I just don’t use paypal and have funds directed to accounts of my choosing, routed through an ITIN holder who is not a “us person”. Not illegal here, and untraceable there, so I do not care.