Do I need to file and report PayPal transactions over $600 if I didn't make any actual profit?

This is a common confusion with the $600 PayPal reporting threshold. Here's what's happening: Yes, PayPal is required to send you a 1099-K for transactions totaling over $600, but that doesn't automatically mean you owe taxes on that amount. When you file your taxes, you'll report the 1099-K amount on your return, but you can also report your expenses against that amount. In your case, since the money was just moving between your own accounts, you'd report the entire amount as an expense/cost, resulting in zero profit (or a small loss due to fees). No profit means no income tax owed on these transactions. The key is to keep good records showing these were just transfers between your own accounts, not actual income. If you get a letter from the IRS questioning the discrepancy, you'll have documentation to explain the situation.

I ran into a similar situation last year with PayPal transactions over $600 that weren't actual income. Using taxr.ai https://taxr.ai really saved me a headache. I was going in circles trying to figure out how to report money that wasn't actually income but was still on a 1099-K. The tool analyzed my transaction history and helped categorize everything properly so I could clearly show these weren't taxable income. It also generated a transaction summary report that I attached to my return explaining the situation. The documentation they created showed exactly why these transfers weren't taxable income - basically proved it was just moving my own money around.

Just wanted to update after trying taxr.ai from the recommendation above. It was exactly what I needed for my PayPal 1099-K situation! I had sold some old electronics and furniture that were personal items (all at a loss compared to what I originally paid). The service automatically separated my personal item sales from other transactions and created a report showing I had no taxable gains. It also prepared a formal explanation document that I'm attaching to my return explaining why the PayPal reported amount doesn't match taxable income. The report clearly documents that these were personal items sold for less than I paid originally, so no income tax is due. Definitely put my mind at ease since PayPal reported over $600 to the IRS but I didn't actually make any profit from these transactions.

If you're getting nowhere with the IRS about these PayPal transactions, try Claimyr https://claimyr.com to get through to an actual person at the IRS. I spent days trying to get clarification about a similar 1099-K issue last year where I had to prove transfers weren't income. Calling the regular IRS number was useless - hours on hold only to get disconnected. Claimyr got me connected to an IRS agent in under 20 minutes who confirmed I was handling the situation correctly. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how to document the transfers properly and what supporting evidence to include with my return. Saved me tons of stress wondering if I was doing it right.

I need to admit I was wrong about Claimyr. After my skeptical comment yesterday, I decided to try it this morning since I've been trying to reach the IRS for three days about my PayPal 1099-K issue. It actually worked exactly as described. I got a call back in about 30 minutes saying they had an IRS agent on the line. The agent confirmed that I don't owe taxes on money transfers between my own accounts even if PayPal reports them on a 1099-K, but she explained exactly how to document it properly on my return with a written explanation to avoid getting flagged for audit. Would have taken me days more of calling to get this information if I could even get through at all. Completely worth it just for the time saved.

I'm a bookkeeper and see this mistake all the time. You need to keep a paper trail showing these were just transfers of your own money. I'd recommend writing a short letter to attach to your tax return explaining these PayPal transactions over $600 were transfers between personal accounts with no profit. Also important - make sure you actually get a 1099-K first. PayPal might not issue one if they can tell these were personal transfers. But if they do send one, don't ignore it because the IRS will be looking to match that income.

Anyone know if this $600 PayPal reporting thing applies to Venmo and CashApp too? I do similar transfers between my accounts and now I'm worried.

I had almost the exact same situation last year. As long as you can show these were your own funds being transferred (not actual income), you won't owe any taxes. I just kept my PayPal transaction records showing money going out of one account and into another, plus bank statements showing the same transfers. I did get a 1099-K but explained the situation on my tax return with a separate statement. No issues from the IRS. The key is documentation in case they ask questions.

I've dealt with this exact issue and wanted to share what worked for me. The IRS doesn't actually care about the $600 threshold itself - that's just when PayPal has to report to them. What matters is whether you actually made taxable income. Since these were your own funds moving between accounts, you have zero taxable income from these transactions. When you file, you'll want to include a brief explanation with your return stating that the 1099-K amounts represent personal transfers between your own accounts with no profit realized. Keep your PayPal transaction history and bank statements showing the money flow - this proves these weren't business transactions or income. I attached a simple one-page explanation to my return last year for a similar situation and never heard anything back from the IRS. The $47 in fees you paid actually works in your favor as documentation that this wasn't profitable activity. Don't stress too much about it - this is becoming a common issue and the IRS understands that not all 1099-K transactions represent taxable income.

The good news is you don't owe taxes on moving your own money around, even if PayPal reports it. Since these were transfers between your own accounts with no actual profit, you have zero taxable income from these transactions. When you file your taxes, include a brief explanation (just a paragraph) stating that the 1099-K amounts represent personal transfers between your own accounts with no income realized. Keep your PayPal transaction records and bank statements as backup documentation. The fact that you lost $47 in fees actually helps prove this wasn't a profitable business activity. This situation is becoming more common with the new $600 reporting threshold, so the IRS is getting familiar with these cases. As long as you can document that it was your own money moving in circles, you'll be fine. Don't overthink it - a simple, honest explanation attached to your return should prevent any issues. The IRS matching system flags discrepancies between 1099s and reported income, but providing upfront documentation explaining legitimate reasons for the difference is exactly what tax professionals recommend.