It started off innocently.
I owed my brother some money and was going to Paypal him the money. As I’m about to press Send, it dawned on me that I still have $800 left on my Chase Freedom card that hadn’t been maxed out from the Q4 2023 5x categories. Why not send the money with card funding, swallow the 2.9% fee, and get the 5x rewards.
As I’m about to press Send on the $800 card payment, I recalled an old DoC post about Chase charging cash advance fees for ‘Family & Friends’ payments on Paypal payments funded with Chase cards. I haven’t heard of this issue in a while, and assume that it’s no longer an issue, but I wasn’t able to get an concrete verifications in the comments there.
- Readers: Please let us know whether there are cash advance issues with Chase cards or other cards when using Paypal to send money using the ‘Family & Friends’ option. (Update: from reading the comments, it appears that the cash advance issue is no longer a problem, and so I could have just sent it as ‘Family & Friends’ and avoided this entire issue. The only report in the comments of having a cash advance issue was with an international F&F payment; I guess those code differently.)
To avoid any cash advance questions, I switched the payment from ‘Family & Friends’ to a payment for ‘Goods and Services’. The only difference when choosing this option is that the 2.9% fee comes off the side of the recipient who is the business owner. When sending $800, my brother will land up getting around $776. We can work that out.
My brother received the payment, along with notification, “You have money on hold, Add your Tax ID by March 20, 2024 to end the tax ID hold and avoid 24% IRS backup withholding.”
Ouch. I didn’t think of that.
Basically, Paypal is factoring in a recent federal law from 2022 which requires them to report revenues generated of $600+. Since this payment was sent toward ‘Goods and Services’ they need his tax ID to send the 1099-K.
The law was delayed for 2022 and even for 2023. But the Paypal system is already set up to only allow business payments of $600+ for those with tax ID on file so that they can send the tax forms as needed.
I’m pretty sure that Paypal won’t actually send form 1099-K’s in excess of federal mandate, and my brother won’t actually get a tax form if he would give Paypal his tax ID number. I can say from personal experience that in 2022 they did not send out a 1009-K tax form for those with revenues less than $20,000.
We came up with an easy solution – my brother refunded me the payment from within the Paypal system. No harm no foul, right?
Wrong. Apparently, the Paypal system considers a refunded payment toward the $600 threshold. And so they refunded me the money, and debited his personal bank account for the $800! They’re keeping the $800 received payment locked up, and they debited his bank $800 to account for a refund on a payment that he never asked for. It’s crazy they can literally steal money from someone’s bank like this, but such is life when dealing with automated systems.
And that’s where we stand now. Either we have to add the Tax ID or contact Paypal to try getting resolution…
(Ironically, there’s a chance I’ll actually get the bonus points from Chase, depending how the return comes back…)
Chuck: what was the resolution to get the money hold released?
I am dealing with a very similar situation.
I don’t recall. Think my brother ended up fighting it with Paypal cuz he didn’t want the 1099.
All this just to get a few $ back from Chase. Wow…
People still use PayPal? Gee, who would after the mess they created in the past (remember eBay)? There are much faster, safer and cheaper ways to send money. Chase is one of the banks running Zelle, I can send money to anybody with an email for free.
don’t use a credit card to send money to fnf on paypal peroid
Paypal sucks. I avoid it like the plague.
It’s not anything Paypal is doing it’s our frickin government. We are allowing our government to hire 20,000 auditors and do things like make this ridiculous change in amounts. They claim the hiring of agents is to catch bllionaires cheating on their taxes, but why change then to $600 trigger? Another benefit of the senile Joe Biden administration.
Yes!
“They claim the hiring of agents is to catch bllionaires cheating on their taxes, but why change then to $600 trigger?” Your logic is amusing.
Well the country is overdue for a revolution but people haven’t reached their breaking point and most likely anyone that tries will disappear and/or get shunned by the public. Somehow, people still think that a handsome knight in shining armor will come along and single handedly save us all and make the world better. Enough of the general population has to snap and take risks. Most people are sheep and cowards.
His mistake was having a bank account linked to Paypal. You should only link a bank account just before withdrawing funds and unlink the account immediately after.
I used to sell a lot of stuff on eBay a couple of years ago and someone disputed the charge on one of my sales which led to PayPal taking the money away. They eventually gave me the money back “as a one-time courtesy” but since I didn’t have a bank account linked, they couldn’t withdraw the funds and for a while my PayPal account had a negative balance.
The best part was that PayPal sent me an email about the negative balance with a link to fund my account, and the funding page let me add funds using a credit card with no processing fees! Unfortunately it only let me fund up to my negative balance. I figured in this scenario PayPal would rather get their money back ASAP than run after me, even if that means eating the processing fees.
I am unlinking my banks from Paypal immediately.
PayPal needs to increase their lobbying spend to get this crap changed by the Congress.
Chuck, you are playing this game way out of your hand. Just hand the damn $800 cash or Zelle $800 to your brother. Issue resolved!
I realize that you don’t want to upload his tax ID, I wouldn’t either, but it’s important to remember that the receipt or non-receipt of a 1099 doesn’t make a transfer of money taxable or nontaxable. It’s just a report telling the IRS that money changed hands. You seem to have ample documentation that the amount was not actually revenue to him, so when he files his taxes, he would not be required to include it in his taxable income.
In short, annoying to get the 1099 and even have the question of taxability come up, but at the end of the day, it changes nothing about your brother’s tax situation either way (unless they actually withhold the 24% – that’d bring another layer of annoyance since he’d have to get it refunded when he files his 2023 tax return).
Spending 4 hours with an IRS auditor, walking him through a PP spreadsheet to show him how effed up PP’s 1099 reporting really is… priceless.
I’ve had to do this twice since 2014, when PP first mastered their 1099 eff-ups.
Buy $500 item using connected bank account = $500 “income” as the money passes from bank to PP
Cancel order/return item = $ 500 “income” as it passes back from PP to checking.
$0 net (which was literally never income in the first place) is now magically +$1000 on the 1099.
This is how all those 80K IRS auditors will have to stay busy to find money to offset for the hundreds of billions laundered in Ukraine (unaudited) and trillion+ laundered by the pentagon annually (also unaudited).
Never use ScamPal to receive money.