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
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