Do I Need a Tax ID Number?
draine761_c7a1098aa1
Posts: 109
I have a Patreon for my 3D art. It brings in less than 13k a year. I just noticed on my Paypal page there was a notification that said,
The name and tax ID number associated with your PayPal account doesn't match IRS records. Confirm your taxpayer info by updating your tax ID.
This struck me as odd since, to my knowledge, I've never had a tax ID number. When I clicked the link for additional info, it said,
Plan to earn $600 or more for goods and services? A change to tax laws requires us to withhold 24% of your payments for the IRS when we don't have your tax ID. Add your tax ID to avoid a hold and 24% IRS backup withholding when you're paid.
It seems that Paypal has to prepare a 1099-K on me because I make more than $600 a year with my Patreon, but do I need an actual tax number or EIN or can I just use my social security number, instead?
Just wondering if anyone else has had experience with this and can offer advice. I don't mind filing taxes on my Patreon now that it's finally making some money, but I don't want to make a mistake. Thanks!
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Comments
This is a question you would need to ask a professional.
Crikey, Richard, who's more professional than y... Oh, you mean a tax professional. =) Yeah, I figured I would ask my Block representative before tax time to be absolutely sure how to proceed, but it was on my mind early this morning so I thought I'd see if anyone could speak from personal experience.
*** Very important notice: Not a tax professional, but a small business owner ***
You can run a business and take business income via your SSN. Most people don't do it that way for large or full-time companies because you, and not your business and its TIN, take the liabilities and debts. But a lot of people who do gig work or have a side hustle just set up shop under their SSN.
You're getting that because of the you have at least one transaction over $600 last year and Paypal has to report all transactions over that on a 1099 starting this with last year's taxes. My assumption is that you may have your paypal configured as a business using a business name or a name that doesn't match your legal name or the SSN you gave them when you set up the account.
Talk to your tax prepaper or accountant as they know your situation and the laws better, but the above is why you're getting that notice.
I am also not a tax professional. And in my non-professional opinion, your tax ID is probably your social security number. And either the name or the social security number, that you gave to PayPal, doesn't match what's on your social security card.
A lot of people will file their taxes and use Schedule C which has a place for self-employment income and self-employment expenses. If they have no expenses then they can just list the whole thing as "other income". But listing expenses helps because there's a whole separate tax people have to pay for self-employment, and it is in addition to the regular tax people have to pay. And they use Schedule SE for that self-employment tax. But they only have to do it if the self-employment money is at least $434, I think.
I've said too much. I'm probably going to be blindfolded and carried away by men in black suits with dark glasses. And high heels aren't great for the terrain I'm going to have to run on.
This. SSN is all you need. You also get a tax break for using a portion of your home as your business. You can also deduct the portion of your internet provider costs you use for business purposes. Assets purchased from Daz, similar entites, software used for your business such as Photoshop, they are all tax deductible. A portion of your computer is deductible. If you use your computer 20% of the time for business and 80% for games you can only deduct 20% of your computer cost. ANYTHING used for your business is deductible. But you can't deduct more than what you earned. You will need to fill out a Schedule C. I'm not sure how you deduct your space used in your home. My girlfriend is a CPA, she has friends who purchase Turbo Tax and then give it to her so she can do their taxes for free. And of course I get to piggyback on it all. Though I usually have to pay something like $10 to get the Schedule C form.
You could check with the IRS. They have a website, toll free phone numbers, and local offices scattered across the country.
EIN is only for small business owners with employees. Self-employed, no employees, no EIN is necessary.
And the IRS has delayed the new "$600 or more" rule this year. It's still the same as before, $20k or more.
Obvious point - make sur this really is coming from PayPal, not a phishing attempt.
I checked my PayPal account & it has my real SSN & nothing else. An EIN is not really needed unless you have founded an LLC and want to get really fancy and professionally 'business-like'..
If you know you are using a bogus PayPal name for anonymity you'll need to correct it. Personally, I'd go ahead & let them withhold the 24% in advance if your SSN in there is legitimate. If that's your only income then you'll get it all back in refunds in the next tax year. If it's not your only income $13,000 is easily enough to push you into the next higher income tax bracket at the federal, and maybe state, and local levels of jurisdiction.
Don't follow a link from that eMail though, just go to PayPal.com directly.
Don't hesitate to call the IRS &/or your tax pro, and DON'T put it off. One, the closer it gets to April 18 (2023 filing deadline), the more crazy-busy both will be. Two, if you have to file quarterly estimated taxes, you need to know that ASAP.
Note: It can be a long, long wait but IRS phone agents are the politest, calmest customer service people ever. (I am a very good CSR but they are better.)
You can also call paypal often for an alternate name and your social security number you just need to use You can also call paypal often for an alternate name and your social security number you just need to use Dba which stands for doing business as which stands for doing business as. So it would be John doe and your social security number and then DBA and the name of the business you've been using.
I never provided anything but a credit card number when setting up my account.
No, you need an accountant. They'll pay for themselves in the deductions they find for you.
Sorry for a lengthly response . . . hope you find something helpful here. I have an 'idle' california incorporation. Because it currently does not generate an income, I do not need an EIN. Until I sell something I cannot claim expenses (no income = no expenses) for that incorporation. As an author (no patreon), Amazon sends out 1099s annually. This has nothing to do with my incorporated company. I use my SS number, not an EIN for those 1099 forms. When I did professional photography, I wrote off a toy trailer and all expenses associated with such. The sales from photography were far less than the expenses incurred and at the time I was employed at a fortune 500 marketing firm. My income came from two sources, and my expenses were deducted from such and often resulted in tax refunds on my joint filing statement. The toy trailer was used exclusively for news and sanctioned photos for racers and it stayed in the driveway on the weekends, if there were no races. It's destination was always a race pit. The key thing is exclusivity. It must be 100% exclusively used for business and nothing personal. If I had taken that trailer out for a fun-family weekend, and posted a few shots on facebook, that would prove it was not exclusive use. Here's an example anyone can relate to: If you have Christmas dinner at the dining table once a year and you use it as a workspace the other 99% of the year, it is not 'exclusively used for business' and not eligible as a work space. If you have a diningroom transformed into a work space and you only use it once a month, but it is exclusively used for business, it qualifies as a work space. Because I had a legit home space, and had to repair the roof, I was able to deduct a portion of those repair costs as eligible expenses during that specific tax year. The space allocated for business use has certain 'requirements' so read up on that, because as you read there are also plenty of benefits. The 'exclusive use' rule, is where most small entreprenuers get nailed for back-taxes owed. They can audit past returns up to six years but typically stop at three. Things that could trigger an audit, other than random algorithms, are claiming a home office when you have a two bedroom place and are also claiming dependents. Where you or your dependents eat or sleep is defined as personal use. An EA not a CPA might better suit some circumstances. EA's specialize in tax forms, and their title 'Enrolled Agent' is the highest credential awarded by the IRS. CPAs are better at financial planning, expanding your business empire, and determining tax shelters etc. EAs do nothing but taxes. My EA is a former IRS employee and cheaper than the CPA I used to have. Anyway, the total taxable income (money from all sources) is tax-free up to a certain point, depending on your age, how you file (joint or single etc.) and your dependents, if any. Deducting part of your work space has limitations and stipulations. The big thing is the space muct be 100% used for business use. I once got audited and I was renting a commercial location, and using a CPA for years, so go figure. The auditor did not leave until he found enough to make his audit worth while and when I offered him coffee he actually said he couldn't accept a coffee because it could be deemed a bribe. It was a horrible experience, and when it was over, I literally signed up and completed a H&R tax course which I can't remember diddly-squat about these days, but it did help me take advantage of the benefits of having a home work space without breaking any rules. But, it isn't the taxes owed that kills you. It's when you get that letter from the IRS, like I did in 2015, about a tax I filed in 2012, saying you owe us $70,000.00 dollars. Yes the majority of it was the penaltys and late fees for money I never knew I owed.
Taxes were so much simpler when they used to come and take a pound of flesh.