Under the new legislation, PayPal will be required to report to the IRS the total payment volume received by PayPal customers in the US who:

  •   Receive more than $20,000 in gross payment volume in a single year, AND
  •   Receive 200 or more payments in a single year.

The IRS changes will apply to all payment providers, including PayPal. They will take effect on January 1, 2011, with the first reports going to the IRS in early 2012.

If you meet the stated thresholds, you will be required to verify your identity by adding a SSN/TIN/EIN to your existing PayPal account. If you are currently using a Personal or Premier account, you will be required to upgrade to a Business account.

Merchants who receive over $20,000 in gross payment volume AND receive 200 or more payments in a calendar year will receive Form 1099-K electronically or by mail. In other words, you can no longer hide PayPal income from the IRS.