Overview

PayPal’s Tax Reporting as a Service helps partners and their merchants meet US tax reporting obligations through automated Form 1099-K filing. This solution enables payment platforms, marketplaces, and SaaS providers to offer integrated tax compliance services without building their own tax reporting infrastructure.

Form 1099-K reports a merchant’s gross payments from goods and services transactions above IRS thresholds. Partners can access and manage these reports entirely through APIs.

Key features

• Automated filing and compliance: Handles all Form 1099-K filings with the IRS and state revenue agencies on your behalf.
• Complete API integration: Provides API access to Form 1099-K in PDF format with real-time webhook notifications for form availability and programmatic management of the entire reporting lifecycle.
• Reportable account management: Allows you to view and update merchant tax data including profile information, transaction aggregations, and tax properties before report generation.
• Self-service corrections: Processes API-based correction requests with a 3-day SLA for merchant profile updates, TIN corrections, and address changes for up to 5 years after original filing.
• Multi-jurisdiction compliance: Manages automatic federal and state filing with jurisdiction-specific thresholds, eligibility logic, and regulatory changes.

Use cases

• Payment platforms enabling tax compliance for merchants.
• Marketplaces providing tax services to sellers.
• SaaS companies offering payments with integrated tax reporting.
• Platforms transitioning from manual to automated tax reporting.

How it works

Tax Reporting as a Service operates in four stages, from initial partner setup through ongoing corrections and compliance.

Setup and enablement

1. Partner: Requests Tax Reporting as a Service through PayPal account manager.
2. PayPal:
   1. Enables the tax reporting capability for the partner account.
   2. Configures reporting thresholds and jurisdiction requirements.
   3. Sets up the partner in the tax reporting platform.
3. Partner: Receives API credentials and configures webhook endpoints.

Merchant onboarding and eligibility

1. Partner: Onboards merchants through standard KYC/CIP processes, collecting required tax information.
2. Merchant: Completes KYC verification to enable payouts and become eligible for tax reporting.
3. PayPal:
   1. Validates merchant eligibility based on KYC completion status.
   2. Collects required tax data: Legal name, full US 9-digit TIN/SSN, and US address.
   3. Monitors transactions for payout-eligible merchants to determine reporting requirements.

Reportable account management

1. Partner:
   1. Retrieves reportable account details to check eligibility and tax data.
   2. Updates tax data including account profile, aggregated transactions, or tax properties through the API.
2. PayPal: Validates updates based on the tax_data.editable status.

Tax form generation and delivery

1. PayPal:
   1. Aggregates transaction data for the calendar year (January 1 - December 31).
   2. Evaluates if the merchant exceeds the $600 federal threshold and state-specific thresholds.
   3. Performs TIN matching with IRS records.
   4. Generates Form 1099-K in PDF format with truncated TIN (last 4 digits) for merchant copies.
   5. Files forms with IRS and state revenue agencies with full 9-digit TIN.
   6. Publishes forms through the API by January 1st of the year following the tax year.
2. Partner:
   1. Receives webhook notifications when forms are available.
   2. Retrieves PDF forms through API.
   3. Delivers forms to merchants through their platform.
   4. Optional: Requests physical mail delivery for specific merchants.

Corrections and compliance

1. Partner: Submits correction requests through API when merchants update tax information.
2. PayPal:
   1. Processes correction requests within 3-day SLA.
   2. Regenerates corrected forms.
   3. Files corrected forms with IRS and state agencies.
   4. Sends webhook notifications when corrected forms are available.
3. Partner: Retrieves and delivers corrected forms to merchants who requested corrections.

Eligibility

Available country: Tax Reporting as a Service is currently available for partners operating in the United States.

Partner requirements:

For a partner to use Tax Reporting as a Service, they need to meet all of the following criteria:

• Active PayPal Complete Payments partnership.
• API integration capability to retrieve forms and handle webhook notifications.
• Merchant KYC/CIP processes that collect required tax data elements.

Merchant requirements:

For a merchant to receive Form 1099-K, they need to meet all of the following criteria:

• Payout eligibility: US-based individual or business with withdrawable funds during the tax year.
• Threshold requirement: $600 or more in gross payment volume from goods and services transactions during the tax year.
• KYC completion: Verified tax information on file through completed KYC/CIP policy.
• Required data elements:
  • For businesses: Legal business name, full US 9-digit EIN, business address.
  • For individuals: Legal first and last name, full US 9-digit SSN/ITIN, individual’s address.