In 2017, Patreon reported my earnings to the IRS. However, PayPal also reported my earnings to the IRS. Because my Patreon income was reported twice, the IRS thinks I made twice the amount I actually made, and now they are asking me to pay them a bunch of extra money.
I contacted PayPal and told them that they didn’t need to report my Patreon income, because Patreon already did so. They told me that they’re legally required to report my income, and to speak with Patreon instead. But, what if Patreon just tells me the same thing?
Do other creators have to deal with this, too? Am I going to pay double taxes, just because the same income was reported redundantly by two different sources?
What is the appropriate solution in this situation?
The only thing I can think of that you could do right now without talking to either company would be for the future (not fixing previous year tax things) would be to no longer have your patreon earnings go through PayPal. It is generally cheaper to have
the payouts through Payoneer if you are making over 1-2 hundred anyways and Payoneer goes directly to your bank. There are some location limitations I think but if you are in north America then it should be an option for you as far as I’m aware.
As for fixing the current issue, the only thing I could think of would be contacting an accountant about your taxes and printing out the records from paypal and patreon and showing them where it overlaps and to get them to help you fix it.
If you have the ability, do not support PayPal, period. All other reasons aside, their complete negligence towards inconveniencing their customers like you is appalling. I haven’t quite heard a story like yours, honestly, but it’s a testament that this does not surprise me one bit.
This seems like something that could easily be cleared up by providing the documentation of your Patreon payouts and your PayPal deposits, which should be tagged as Patreon payouts, to the IRS.
It should be as simple as providing them with all of your documentation and them seeing that Patreon funds went through Paypal and should be deducted accordingly rather than counted as double. I know the “speak to your tax professional” line is about as useful as a digital pat on the back, but when I pointed out that this could happen to my handy dandy Tax Person they had me covered.
But I am also moving towards direct deposits through my bank just in case this ever rears its ugly head for me. Good luck!
One question: are you self-employed, or is this a side gig from a dayjob?
Here’s the deal: if you are employed by someone else, you will have withholding from your income. The employer also pays withholding, but usually you don’t see that. However, if you are self-employed then you are both employed and employer, and will be required to pay both instead of one or the other.
If you pay your taxes as an employee or hobbyist, but the IRS decides you are self-employed, it will increase what you owe.
If this is what has happened to you, then it has nothing to do with both Patreon and PayPal reporting to the IRS. Take your records in to an income tax preparer or attorney and have them look at them to see if this is what has happened.
DISCLAIMER: I’m not a professional in any field that has a connection with income tax, and you should discuss this with someone who is if you haven’t already.
I had a similar issue a few years ago with Udemy/PayPal. Showing them the payout list with the PayPal transactions worked just fine so hopefully you should be good!