Paypal is making money with your account (when you receive money, interest, etc). So they are declarying their revenue to gov. The gov can verify where the revenue come from and could, or not, check for each people that have paid a small fees to Paypal. They will probably check some people that make a lot of money, and it's not impossible they check other people. In Canada, if I did not declare it, I could have a huge bill because they can check all my bank account for the 5 last year... I don't take risk.
Sorry to bring this topic back up again, but say I am using paypal frequently as my father's friend is currently helping me to finance my living cost here and he transfers money frequently to my paypal account every month. How does PayPal checks that this is not an income that I should be responsible for taxation? I am not a US citizen though... can anyone clarify this? Edit/Delete Message
if someone is giving you money, then it is income, and taxable....in the US I'm pretty sure there are laws about gifts that make some of them tax free...but you'd be better off speaking to a CPA about the issue and see what they have to say about it.
Yes and no. it's depends how much is it. even if it's a gift if it's more than the limited. That money gift is taxable. But thats for the rich people. same with donation, lottery, etc etc.
all of my friends who got their dad to send money here never have to pay taxes, and so far they're fine
So google says: Under the IRC Section 6050W, PayPal is required to report to the IRS the total payment volume received by US account holders whose payments exceed both of these levels in a calendar year: US$20,000 in gross payment volume from sales of goods or services in a single year. https://www.paypal.com/us/smarthelp/article/how-does-paypal-report-my-sales-to-the-irs-will-i-receive-a-1099-tax-statement-faq729 Thats for US account holders, not sure about other countries.
Any income you receive through PayPal, whether or not it's reported on form 1099, must be included on your tax return. ... Even if you don't operate a formal business, you will still be required to report the income on Line 21, “Other Income” on IRS Form 1040, Schedule 1.
Here it the deal: Paypal, in many ways, is just a virtual bank. All banks do some form of reporting to the government, though not regarding income that they cannot actually track. What they do very well, however, is create a complete and total record trail of all of your transactions and they keep them for many years. It is between you and your accountant as to what you report as income to the IRS every year. You could report zero or very low income numbers for years without problems. But once the IRS decides to audit you, the game changes dramatically as they will have all of your records and all of the proof they need if you have been dishonest with them. I once took an accounting course at Harvard (hated it) and the professor was well-credentialed and had been the Accountant for the city of Paris. I remember almost nothing from the course, except the professor's following quote: "Avoid taxes, but do not evade them." Tax evaders go to jail.
PayPal would not know your income based on transactions. I am sure just like a bank they report suspicious activity from large volume of transactions to high dollar transactions just like a bank.... but they have no idea what your income is.