Do I need to pay taxes on my PayPal art commission invoices?

The $400 self-employment threshold is for federal taxes, not state taxes. So while your state may have a higher threshold before you need to file state taxes, you still have federal obligations once you hit that $400 mark in self-employment income. When you earn income through art commissions, you're essentially operating as a self-employed business owner (also called an independent contractor or sole proprietor). Here's what this means for your taxes: 1. You need to report ALL income on your federal taxes, even if PayPal doesn't send you or the IRS a 1099 form 2. You'll need to file Schedule C to report your business income and expenses 3. You'll also need to file Schedule SE to calculate self-employment tax (which covers Social Security and Medicare taxes) The good news is you can deduct business expenses like art supplies, software subscriptions, and even that PayPal fee! This reduces your taxable income.

This is a common confusion for artists just starting out with commissions! The thing to understand is there are two separate issues: federal income taxes and self-employment taxes. For federal income taxes, you probably don't owe anything if your total income (from all sources, including any regular job) is below the standard deduction ($13,850 for single filers in 2023). For self-employment taxes (Social Security and Medicare), the threshold is $400 in net profit from your business activities. Since you made over $400 from your art, you technically should file Schedule C (for your business income/expenses) and Schedule SE (for self-employment tax). The PayPal reporting thresholds ($20k for 2023, $600 for 2024) are just about when PayPal sends 1099-K forms to you and the IRS. Regardless of whether you receive a 1099, you're still legally required to report all income.

This is a common confusion! The PayPal reporting threshold and your personal tax filing obligations are two separate things: 1) PayPal's reporting thresholds ($20,000 for 2023, $600 for 2024) are just about when THEY have to send you and the IRS a 1099-K form. This doesn't determine whether YOU have to report the income. 2) For federal taxes, if you have self-employment income over $400 in a year, you're required to report it and potentially pay self-employment tax (which is basically the self-employed version of Social Security and Medicare taxes). The good news about your state tax situation is correct - many states have much higher minimum filing thresholds than the federal government. For your art commissions, you should keep track of all your income AND business expenses (art supplies, software subscriptions, portion of internet used for business, etc.). When you file, you'll report this on Schedule C, and the net profit will determine what you owe.

I've been in a similar situation with selling art online and just struggled through tax season. I found this amazing tool called taxr.ai (https://taxr.ai) that literally saved me hours of confusion. It analyzed my PayPal transactions and helped me figure out exactly what I needed to report. Since you're making over $400 in self-employment income, you do need to file federal taxes even if your state doesn't require it. The tool helped me understand what expenses I could deduct (like my iPad, Procreate subscription, and even a portion of my internet bill since I use it for delivering digital art). It also explained that the PayPal fees are deductible business expenses, which lowered my taxable income. Definitely worth checking out if you're confused about the whole self-employment tax situation with art commissions.

After dealing with the exact same situation, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure out my PayPal commission income situation. I was getting so confused trying to understand if I needed to pay taxes on my graphic design side gig since I made about $800 through PayPal last year. The tool analyzed my situation and explained exactly what I needed to report on my taxes even though PayPal didn't send me any tax forms. It walks you through what counts as business expenses too, which I had no clue about before. Turns out I could deduct my digital art software subscription and part of my computer purchase!

Just wanted to update after trying taxr.ai that someone recommended here. I was genuinely surprised - it actually did understand all the PayPal commission income rules! I uploaded screenshots of my PayPal transaction history and it sorted everything out, showing me exactly what I need to report for my indie jewelry sales. The best part was it helped me identify business deductions I didn't know I qualified for - like a portion of my home internet and the shelving I bought to organize my materials. Ended up saving me around $200 compared to what I thought I'd owe. Wish I'd known about this last year when I totally overpaid on my taxes because I was afraid of doing something wrong.

If you're still struggling with figuring out your tax situation, you might want to call the IRS directly to get clarity. I know that sounds terrifying (it was for me), but I found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes instead of waiting for hours. I had a similar situation with my Etsy shop income that I was getting paid through PayPal, and I was completely confused about what I needed to report. The IRS agent I spoke with clarified everything for me. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was about to pay an accountant $250 just to answer my questions, but this ended up being so much more affordable and I got answers straight from the source.

I have to eat my words about that Claimyr service. I was super skeptical when I saw it mentioned here, but I was desperate after trying to call the IRS for three days straight about my PayPal art income. Figured I had nothing to lose and tried it yesterday. Got connected to an IRS agent in about 25 minutes (not quite the 15 minutes advertised but WAYYY better than my previous attempts). The agent confirmed that yes, I do need to report my comic commission income even though it's under PayPal's reporting threshold, but then helped me understand exactly which form to use and how to calculate my deductions for art supplies and software. Honestly saved me hours of frustration and probably a lot of money in potential mistakes. Just wanted to follow up since I was such a doubter.

Just wanted to add that the PayPal fees are NOT tax withholding - they're just the cost of using their service to process payments. You should be tracking your gross income (before the fees) and then the PayPal fees count as a business expense that you can deduct. Also, make sure you're tracking ALL your business expenses like: - Art supplies - Digital software or tools - Portion of internet/phone used for business - Website fees if you have one - Shipping materials if you mail physical art This will reduce your taxable income significantly!

Ok wait I'm confused by some of the answers here. If PayPal doesn't report under $20,000 for 2023 and the IRS doesn't know about the money, why would anyone bother reporting it? Seems like unnecessary work if no one's checking anyway lol

After dealing with the exact same headache last year, I finally found taxr.ai (https://taxr.ai) and it totally saved me. I upload my PayPal transaction history and it analyzes everything to tell me exactly what I need to report. It's specifically designed for side hustles and gig work where the reporting requirements are confusing. The tool breaks down what counts as business income vs personal transfers, which was super helpful because some of my "art commissions" were actually just friends paying me back for dinner! It also helps identify what expenses you can deduct against your art income - like supplies, software subscriptions, etc.

Just wanted to update everyone - I tried taxr.ai after seeing it mentioned here. My situation was almost identical (made about $800 from digital art last year through PayPal). The tool immediately sorted my actual commission payments from personal transfers and even identified some art supply purchases I could deduct! Turns out I did need to file a Schedule C for federal, but I was under my state's minimum filing threshold. The report it generated made it super clear what forms I needed and what numbers go where. Way better than the hours I spent trying to decipher IRS websites!

I just wanted to update after trying taxr.ai that someone recommended here. It was honestly exactly what I needed! I was totally freaking out about my art commission income but the tool walked me through everything. It confirmed that yes, I need to pay federal self-employment tax even though my state doesn't require me to file, but the amount I actually owe is way less than I feared. It helped me identify a bunch of deductions I didn't realize I could take - even my art reference books and online course I took to improve my digital painting skills. The best part was it explained everything in normal human language instead of confusing tax speak. Seriously wish I'd found this before having my mini tax panic attack lol.

If you're stuck on hold with the IRS trying to get answers about this (like I was for HOURS), try Claimyr (https://claimyr.com). They'll actually get you through to a real IRS agent without the ridiculous wait times. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was confused about the self-employment tax requirements for my Etsy shop income and kept getting disconnected when calling the IRS directly. With Claimyr, I got through to an agent in about 20 minutes who explained exactly what forms I needed to file for my situation.

If you're still struggling to get answers from the IRS about self-employment taxes for your art business, try using Claimyr (https://claimyr.com). I was in the same boat last year with my Etsy shop income, couldn't get anyone on the phone at the IRS, and was panicking about whether I was filing correctly. Claimyr got me connected to an actual IRS agent in about 20 minutes when I had been trying for DAYS on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed that yes, the $400 threshold applies regardless of what PayPal reports, but also walked me through exactly which forms I needed and how to handle my specific situation with multiple income streams. Worth every penny not to sit on hold for hours.

OK I have to admit I was wrong about Claimyr. After my snarky comment, I decided to try it anyway because I was desperate to talk to someone about my 1099-NEC reporting requirements for freelance work. I've literally NEVER been able to get through to the IRS before (always got the "call volume too high" message), but with Claimyr I was connected to an agent within 35 minutes. The agent answered all my questions about PayPal income reporting and confirmed that yes, I need to report income over $400 on Schedule C even if I don't get a 1099. Eating my words now but wanted to share in case anyone else was as skeptical as I was.

I take back what I said about Claimyr being a scam. I was desperate after trying to reach the IRS for three days straight about my art business taxes, so I gave it a shot. The service actually worked exactly as described. I put in my number, and about 25 minutes later I got a call connecting me directly to an IRS agent. No waiting on hold, no getting disconnected after an hour of waiting. The agent helped me understand that I do need to file Schedule C and SE for my $750 in commission income, but also explained how to deduct my iPad Pro and Apple Pencil that I use exclusively for art. Apparently you can depreciate expensive equipment over several years which I had no idea about. Saved me from making a costly mistake on my taxes and probably hours of frustration. Sometimes it's worth paying for convenience.

Something else to keep in mind - if you're doing art commissions, you can deduct your expenses against that income! Keep track of: - Art supplies - Software subscriptions (like Photoshop, Procreate, etc) - Portion of internet/phone used for business - Computer equipment - Website fees - PayPal/platform fees This can reduce your taxable income significantly. I track all my expenses in a spreadsheet with dates and descriptions.

I file my art commission income on my taxes every year. One thing to remember is that you can deduct your business expenses from your gross income, which lowers your taxable income. Things like: - Art supplies - Software subscriptions - Computer/tablet (proportionate to business use) - Home office space (if you have a dedicated area) - Professional development (books, courses) - Website hosting - Marketing costs Those PayPal fees are definitely deductible! Keep track of everything with a spreadsheet or accounting app. I personally use Wave which is free for invoicing and expense tracking.

Wait I'm confused about the payment threshold thing. I thought if you make under $600 from a platform they don't report it and you don't have to pay taxes on it?? I've been selling art for years and never reported any of it since it's just a hobby that makes a little extra cash. My total last year was like $950 across different platforms. Am I in trouble??

I was in the same boat last year! One thing nobody mentioned yet - you can actually use the free filing options through the IRS website if your income is under certain limits. I used FreeTaxUSA and it walked me through the Schedule C stuff for my etsy shop. Took like 20 minutes.

I used FreeTaxUSA which is completely free for federal returns (you only pay like $15 for state if needed). Unlike TurboTax which tries to upsell you the moment you mention any business income, FreeTaxUSA includes Schedule C and Schedule SE in their free version. The interface isn't as fancy as TurboTax but it gets the job done. It walked me through all the self-employment stuff and helped me identify deductions I could take for my art supplies and equipment. Definitely saved me from paying those ridiculous fees that other tax software charges for "premium" features that should be standard. Just make sure you have all your income and expense records organized before you start - the software is only as good as the information you put into it!