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PayPal Crypto Taxes

All Your Questions About PayPal Crypto Taxes: Answered!

Let us take a look at PayPal’s crypto front and also one of the most challenging aspects of any crypto platform: PayPal crypto tax and reporting tax forms.

PayPal’s proposal to accept cryptocurrency last year may help with widespread acceptance, but it may also imply more tax work for those unfamiliar with the space.

PayPal has rolled out buy, sell, and hold options for cryptocurrencies on its platform to U.S. customers. However, there’s one very crucial drawback that you must take note of: it, unlike traditional exchanges and wallets, will not allow users to withdraw or deposit their holdings.

Let us take a look at PayPal’s crypto front and also one of the most challenging aspects of any crypto platform: PayPal crypto tax and reporting tax forms.

What is PayPal Crypto Hub?

Paypal launched its crypto hub back in 2021. Users around the world will continue to buy, sell, and store cryptocurrency, and also use it at any of PayPal’s 26 million merchants. Because the PayPal crypto hub is currently in beta, you can only buy and sell four prominent cryptocurrencies:

  1. Bitcoin (BTC)
  2. Bitcoin Cash (BCH)
  3. Ethereum  (ETH)
  4. Litecoin (LTC)

But Here’s The Catch!

It must be noted that, unlike typical crypto exchanges and wallets, you won’t be able to move your cryptocurrency out of PayPal. Thus, PayPal only gives you access to the public address of your cryptocurrency and not any private key.

Although this is quite “anti-crypto” and runs against the core ideas of cryptocurrencies such as self-custody and peer-to-peer transmission, it does imply that PayPal crypto customers will be able to trace their cost base more easily, which will make tax filing easier (more on this, later in this blog).

The transferrable nature of the asset causes challenges with cost-based monitoring and reporting in the traditional crypto sector. If you can’t move your cryptocurrency in or out of PayPal, it’s rather simple to monitor your cost basis and file your taxes.

Is PayPal Ideal for Investing or Staking?

As a result, PayPal is ideal for investors who wish to purchase and HODL their crypto assets in PayPal and sell more often with the dramatic fluctuations of the market. 

However, it is of limited value to any investor who wants to transfer their crypto to and from exchanges and wallets in order to use it for DeFi protocols, lending, or staking.

Do you have to Pay Fees on Paypal Crypto?

You’ll have to pay a charge for each transaction, just as with any other cryptocurrency. The following fees apply when you purchase or sell cryptocurrency on the PayPal crypto hub:

Purchase Amount or Sale Amount PayPal Fee
$1 to $24.99 $0.50
$25 to $100 2.30%
$100.01 to $200 2.00%
$200.01 to $1,000 1.80%
More than $1,000.01 1.50%

However, when you buy cryptocurrency through PayPal, it will automatically switch it to USD at no additional cost. Thus there aren’t any costs associated with using PayPal.

PayPal Crypto Taxes

Now coming to one of the most important aspects: PayPal crypto taxes.

You can only perform four sorts of transactions: buying, selling, and holding. Each is taxed differently, as follows:

Crypto activity Taxability
Purchasing cryptocurrency Not taxable
Holding cryptocurrency Not taxable
Selling cryptocurrency Capital gains tax
Purchasing goods and services Capital gains tax

The taxability of crypto is decided by the Internal Revenue Service, Notice 2014-21.

From the table above, it is clear that purchasing and holding crypto do not incur taxes. However, when you dispose of your crypto assets, in the form of selling or purchasing other goods and services, you will incur capital gains taxes. 

How to Calculate Capital Gains on PayPal Crypto Taxes?

Trading or selling bitcoin results in a capital gain or loss. Capital gains, like conventional assets, are incurred when the cost of selling is higher than the cost of buying. A capital loss, on the other hand, occurs when the cost of selling is less than the cost of acquisition.

Let us understand this, with an illustration.

Harry bought $15,000 of Bitcoin in October 20211 and sold it for $25,000 in March 2022, making a  ($25,000-$15,000)= $10,000 profit.

The amount of tax Harry must pay on her capital gain is determined by his:

  • Tax rate
  • Holding period (short-term and long-term)

How Can I Report PayPal Crypto Tax Forms?

Now that you know all about PayPal crypto taxes, let us now discuss PayPal crypto tax forms.

Just like your other taxes, you’d have to report your PayPal crypto taxes too on your individual tax form. The two most important PayPal crypto tax forms are as follows:

Tax Form Purpose
IRS Form 8949 Details of disposal (be it sell or purchase)
Schedule D Net capital losses or gains

As mentioned earlier, PayPal’s ‘locking’ of crypto within its platform actually simplifies filing taxes for PayPal crypto. You can move your crypto between various wallets and exchanges, and also transfer coins across blockchains, with most crypto platforms. 

What about 1099 Forms?

1099 records are used to keep track of income. Several cryptocurrency exchanges issue 1099 forms to their customers. The IRS receives a copy of a 1099 form at the same time too.

The problem is that there aren’t any 1099 forms that are specifically designed for cryptocurrency. A number of crypto exchanges were issuing 1099-K crypto tax forms. However, as this document represents gross revenues rather than net capital gains, it caused a lot of uncertainty not only among crypto investors but also in the IRS.

PayPal Crypto Taxes & IRS

The Internal Revenue Service has made it necessary for all payment platforms based in the United States (including PayPal) to give reports to the IRS on customers who make payments through their platform.

PayPal states in its bitcoin documentation that it participates in 1099 information reporting for users that purchase, sell, or deal in cryptocurrencies on its platform.

When a user has 200+ transactions in a year and their gross payment volume surpasses $20,000, PayPal distributes 1099-K forms. Both the user and the IRS get these forms.

These forms, on the other hand, only indicate users’ gross earnings for a specific tax year. Investors must retain records of each bitcoin transaction in order to correctly submit crypto taxes. This information may be seen in your transaction history and account statements.

The Bottom Line: Filing Your PayPal Crypto Taxes with ZenLedger

Prior to actually buying crypto, whether through PayPal or not, you should prioritize other vital elements of your money, such as savings and taxes.

And, no matter what platform you use, spend some time learning about long-term crypto investment, keeping your coins safe, and dealing with market swings.

If you just use PayPal to acquire and sell cryptocurrency, your crypto tax filing will be simple! Several crypto investors, on the other hand, use various blockchains, exchanges, and wallets for their crypto assets, which may make crypto tax reporting a nightmare.

ZenLedger can help you easily calculate your crypto taxes, and also find opportunities for you to save money and trade smarter. Get started for free now or learn more about our tax professional prepared plans!

Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide tax, legal or financial advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

PayPal Crypto Taxes FAQs

1. Does PayPal give you 1099 for crypto?

When a user has 200+ transactions in a year and their gross payment volume surpasses $20,000, PayPal distributes 1099-K forms. Both the user and the IRS get these forms. These forms only indicate users’ gross earnings for a specific tax year.
Investors must retain records of each bitcoin transaction in order to correctly submit crypto taxes. This information may be seen in your transaction history and account statements.

2. Do you get a private key for PayPal holdings?

It must be noted that, unlike typical crypto exchanges and wallets, you won’t be able to move your cryptocurrency out of PayPal. Thus, PayPal only gives you access to the public address of your cryptocurrency and not any private key.
Although this is quite ‘anti-crypto’ and runs against the core ideas of cryptocurrencies, it does imply that PayPal crypto customers will be able to trace their cost base more easily, which will make tax filing easier.

3. How to calculate capital gains on crypto?

Trading or selling bitcoin results in a capital gain or loss. Capital gains, like conventional assets, are incurred when the cost of selling is higher than the cost of buying. A capital loss, on the other hand, occurs when the cost of selling is less than the cost of acquisition.

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