If I have been using PayPal to withdraw gambling winnings, I know I will receive a 1099K. I have made about $4,000 in withdrawals from PayPal. What will the tax rate be?

[TryingToHelp19]

Well, it is the IRS so they may want to go down that rabbit hole and make you show your gambling winnings/losses.  You should have all of that detailed and ready to show anyway, but especially if you are going to claim you transferred that much money back and forth (averaging $466/day) between sportsbooks and the net for the year was a gambling loss.  Just my opinion.

[JulieS]

No, I don't think that you at extra risk of an audit as long as all of your winnings are reported on your tax return. 

There are many articles posted about gambling winnings increasing your audit risk, but that is mostly because people don't report them. 

Keep your records, report all your winnings and losses and you will be prepared if you are unlucky enough to be selected for audit. 

[jamesneedsanswers]

I received a corrected 1099-K from PayPal a few days ago which took off all my sports betting withdrawals. I've reached out to PayPal to find out why my new 1099-K shows 0$ across the board (since I'm assuming they removed the sports deposit withdrawals from their calculations which would mean 0$ but has anyone else experienced this?).

Any thoughts on this or has this happened to anyone else?

[GeorgeM777]

Given that you have now received a corrected 1099-K, you have what you need to confirm your previous entries.  Have you already filed your return?  If so, it may not be necessary to amend your previously filed return because nothing will change assuming you entered your 1099-K transaction amount with an equal offsetting transaction amount, thus "zeroing out" those entries.  As noted in previous posts, keep all of your 1099-K documents in the event you need to substantiate your entries.  

@jamesneedsanswers 

[kverbeek]

My wife and I BOTH got 1099-Ks from PayPal for sportsbetting withdrawals.  They were both a substantial amount of money.  A couple days ago, we both got notifications of a "corrected" 1099-K and my wife's was completely zeroed out and mine was not.  I think it's so weird as we both have the same withdrawal types (sportsbooks).  Why would hers become all 0's and mine not? I contacted PayPal about it, but they didn't have a good answer.  I think it's kind of a **bleep**-show over at PayPal right now with all of these new reporting requirements!  

[jamesneedsanswers]

Did yours reduce in amount at all? I just filed today with my new corrected 1099-K which is how I would have filed previously with the adjustments since nothing on the 1099-K should have been.

This whole thing has been a mess!

[DawnC]

Keep detailed records of your sports betting or any gambling transactions that may be mixed in with 1099-K forms.   Although the reporting and issuing requirements have changed for issuers of 1099-K forms, the income reporting requirements for taxpayers have not changed.    Don't depend on Pay Pal or any other 1099-K issuer to figure out your taxable or reportable income amounts.    As long as you report all of your income (whether or not it is reflected on a tax form) and keep very detailed records (especially with gambling), you will avoid penalties and interest.   This article is a good source of reporting and record-keeping information for gambling income and losses.   The amounts on 1099-K forms can be taxable, nontaxable, or partially taxable.   If taxable, the income could be subject to ordinary tax, capital gains tax, self-employment tax, etc.    The IRS gets a copy and knows the amounts, but they don't know if it is taxable or what kind of tax is applied until you provided the necessary details.   

Remember - not all income reported on a tax form is taxable and not all taxable income is reported on a tax form.   @jamesneedsanswers 

[TryingToHelp19]

Since others were receiving updated 1099-K forms, I checked my Paypal account as well.  I saw mine was updated on March 16, 2023, but I did not receive a message from them letting me know this, so thank you everyone for mentioning this was happening.

My updated 1099-K was almost completely correct as they removed all of my sportsbook transactions except for the ones in July for some reason.  I contacted Paypal about this and it seems like they were going to prepare another updated 1099-K for me, but when I got transferred to the tax department, it was after 9:00 PM EST, so they were closed.  I will have to call back tomorrow.

[jamesneedsanswers]

Glad this has helped some people. What a headache this has caused and PayPal has done the right thing and correct this!

[TryingToHelp19]

Hello everyone.  I thought I would post an update on my PayPal 1099-K situation as others may find it interesting.

So, after others stated they received an updated 1099-K from PayPal, I checked my account and I also received an updated 1099-K on March 16, 2023.  I saw PayPal backed out all of my sportsbook transactions with the exception of July 2022 for some reason.  Over the past week, I have been going back and forth with PayPal to get the $10,000 in sportsbook transactions from July 2022 removed since they removed all of the other sportsbook transactions from the rest of the year.

However, I learned they cannot do that, and this is the interesting/irritating part as to why.  FanDuel categorizes transactions to PayPal as "personal" and they do not need to be reported so they were removed.  Unfortunately, Caesars reports transactions to PayPal as "goods and services" and PayPal, per the law, must report them.  There is nothing PayPal can do.

The specific response from PayPal is, "Rebates and other payouts may be classified as goods and services transactions depending on how the sender categorizes their payments. We realize that these amounts may or may not be included in your taxable income, but we're required to report them. You should work with your tax advisor to determine how these transactions should be treated for tax purposes.

Payments categorized as "Personal" or "Donation" are not included in the 1099-K gross amounts."

I already opened a case with Caesars to see if they can, in the future, categorize transactions from my account to PayPal as "personal", but I am not too hopeful about that happening.

Just an FYI, I just know how FanDuel and Caesars are currently reporting transactions to PayPal.  I do not know how any of the other sportsbooks may be reporting their transactions.

[Mrpiano1967]

As of right now, I do not have an updated 1099K and it is all online gambling. Do you know how to request to get an updated one showing that the transactions are not actual income?

[Mrpiano1967]

Were you able to get an updated 1099K showing zero dollars of income?

[TryingToHelp19]

Paypal generated one automatically for me when they recategorized payments correctly and I did not have to ask for one to be done.  It was in my PayPal documents history.  However, they would not zero out the money from Caesars, just every other sportsbook I am with.  It is because of how Caesars categorizes their PayPal transactions.

I asked that Caesars change how they report transactions to PayPal in the FUTURE.  Currently, Caesars is reporting transactions to PayPal as "goods and services" and therefore they must be reported on a 1099-K.  I would like Caesars to start reporting these transactions as "personal" so they do not need to be reported on a 1099-K.  Other sportsbooks categorize transactions to PayPal as "personal."

This was the response from PayPal to me when they told me they could not legally remove the Caesars transactions and why I bring this up, "Rebates and other payouts may be classified as goods and services transactions depending on how the sender categorizes their payments. We realize that these amounts may or may not be included in your taxable income, but we're required to report them. You should work with your tax advisor to determine how these transactions should be treated for tax purposes.  Payments categorized as "Personal" or "Donation" are not included in the 1099-K gross amounts."

Earlier in this chat chain, I gave detailed instructions on how you can explain this on your taxes and back them out via Turbo Tax.

I hope this helps.

[Mrpiano1967]

Thank you so much!  I am praying it is there because this is absolutely ridiculous that they would send it to me and report it as income when it is just activity from transactions. This is a hassle. I wish they would re-categorize this going forward. I appreciate your help!

[Mrpiano1967]

Also where did you find a “Document” list on PayPal?  I only see “ Taxes & Statements” and the incorrect 1099K form is in there. Thanks in advance!