Homeschool Groups: Prepare for new 1099-K reports if you use Paypal, Stripe, Venmo, etc.

Lots of homeschool groups use Paypal, Venmo, Stripe, Square, etc. and other third party payment processors to collect dues and fees. That’s a great way for your group’s families to pay the organization easily.

For 2022, these third party payment apps will start sending everyone who receives more than $600 though their service a tax form called a 1099-K and a copy goes to the IRS. This means that your homeschool group will receive a 1099-K in early 2023 showing all the funds (if greater than $600 in the previous calendar year) that flowed through Paypal, Venmo, etc. and a copy goes to the IRS!

Here’s the law itself (scroll to page 94 of the 114 page pdf). It is part of the American Rescue Plan Act of 2021. The new rule is effective beginning on January 1, 2022. President Biden signed the law with the threshold amendment in March 2021.

What to do with a 1099-K when it comes in early 2023?

If your organization is a tax exempt, nonprofit AND your payment account is set up under the organization’s name AND uses the organization’s EIN (Employer Identification Number) as their tax ID, you have nothing to worry about!

You should simply give the 1099-K to the treasurer or your bookkeeper and she should check the amount for accuracy. Then file it away. Your tax exempt organization should be filing an annual IRS Form 990/990-EZ/990-N with the IRS every year. The amounts on the 1099-K will be included in the total revenues on this 990 Information return. But you will not owe additional tax on this money, because your organization has tax exempt status. 🙂 The IRS Form 990/990-EZ/990-N are information returns for tax exempt organizations, not tax returns.

How do I know if my Paypal, Venmo is in the organization’s name?

Log onto your third party payment processor. Go to Settings>Account Information and click around until you find a Tax ID section or Identity Verification (on Venmo). Also look for Account Type. In PayPal and Venmo you should have a Business Account, not personal account for your homeschool group.

How do I know if my group is a tax exempt nonprofit?

Look up your organizations name in the IRS Exempt Organization database. https://apps.irs.gov/app/eos/

Here’s an example from a charity I serve as treasurer:

When I click on the hotlink of the organization’s name I learned a few more details and see that this organization is update date with filing annual IRS reports.

If your organization is not listed or it says Revoked with a date, your homeschool group is not tax exempt and must correct that immediately. Start by reading the blog posts and contact HomeschoolCPA to apply for tax exempt status or get tax exempt status reinstated if it expired.

How do I know if we are using the organization’s EIN as our tax ID?

Log onto your third party payment processor. Go to Settings>Account Information and click around until you find a Tax ID section or Identity Verification (on Venmo). In PayPal and Venmo you should have a Business Account, not a personal account for your homeschool group.

What if our Paypal account is a person’s name?

Well, now you have a problem! Paypal (I’m using Paypal generically to mean any payment processor) thinks this account belongs to an individual and he or she will get the 1099-K. A copy goes to the IRS and the IRS will expect to see this money reported on that person’s individual tax return! Expect to get a panicked call from this individual! She will probably have to hire a professional tax preparer to help her report this money (which is not really hers) and deduct any expenses, so she avoids a large tax bill. She will be very unhappy with your organization!

How to check your Paypal account: In Paypal go to Account Settings>Business Profile> Account Owner Information. Look under the Tax ID. There should be a number for the EIN, but NOT for SSN. That’s how it should be!

If your Paypal account is in someone’s SSN, change that immediately. You may need to contact Customer Service. They will want verification of your EIN (the IRS letter you received when you applied for your EIN) and perhaps other documents such as proof you are a nonporift and tax exempt with the IRS. If you do not have these documents, Paypal will likely close your account. So empty the cash first and create a new Paypal account under the name and EIN of your organization.

Here’s what to do NOW in the last weeks of 2021:

  1. Log onto all your third party payment processors (Paypal, Venmo, Zelle, etc). Verify that all the accounts are in the name and EIN of your organization. Verify that the address is up to date too. Take screen shots and save them permanently.
  2. Fix any incorrect information on the third party processor accounts. Take screen shots and save them permanently..
  3. Call the third party processor customer service if you have any problems updating your information online.
  4. Don’t have tax exempt status? Contact HomeschoolCPA to apply for tax exempt status. Start by reading these blog posts:

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

A homeschool group is using free Paypal. Is that legit?

Hi Carol!

Our small homeschool group set up our business account with PayPal to collect payments from our families.

A friend/homeschool leader said we should accept money through the “friends and family” option on PayPal and avoid the PayPal fees. I didn’t even realize this was an option for a business account, but it is. I’m not sure if that’s legit. 

What scenario would I ever accept money via friends and family?

Thanks so much for your service to us homeschooling mamas!

-V, a homeschool group leader

 

Dear V,

Since you are accepting payment for rendering a service, you cannot avoid the PayPal fee.

To use the “friends and family” option would be deceitful.That option is for true transfers of money among friends, but not if your group is getting paid for rendering a service.

No one likes paying fees, but PayPal is doing your organization a service (processing credit card or debit card payments) and you should expect to pay for that service. You may have to increase your fees to the families a bit to cover the extra expense, but paying the Paypal fees is the correct, proper and legal way to run your homeschool group.

Carol Topp, CPA

HomechoolCPA.com

 

Have more questions about managing the money in your homeschool group? My book Money Management in a Homeschool Organization may be just what you need!

Money Management for Homeschool Organizations

Does your homeschool group manage their money well? Do you have a budget and know where the money is spent? Do you know how to prevent fraud? This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.


Paperback $9.95

Ebook(pdf) $3.99

Kindle $3.99

 

 

Paypal sent homeschool leader a 1099-K. Is it taxable income to her?

 

Our homeschool co-op leader set up a Paypal account to collect payments from our parents. She was very surprised when Paypal sent her a 1099-K for $40,000 with her name on it! Does she have to report this on her tax return even though it was for the co-op?

 

Oh dear. It appears that leader used her personal name and Social Security Number when setting up the Paypal account. She also used her name and SSN when setting up a checking account. This is not good!

This group was in the process of forming  as a nonprofit corporation in her state, getting an EIN for the corporation, and then applying for tax exempt status with the IRS. But the parents starting paying before all the paperwork was completed so the leader simply set up a personal Paypal account. It’s easy to set up a Paypal account (I have 3 Paypal accounts myself). But now she has a tax mess on her hands!

She should have filed as a nonprofit corporation, gotten an EIN and then set up the PayPal account in the name of the new nonprofit corporation with their new EIN. Then the 1099-K would have come to the homeschool group, not her personally.

But that’s water under the bridge.

In the eyes of Paypal and the IRS, the leader has started a business, collected money, and now needs to report that on her income tax return. Ugh!

She should file a Schedule C Business Income on her personal Form 1040 and report the Paypal income as Gross Receipts. At this point the leader should contact me or a local CPA for assistance in preparing her tax return. This is not the year for DIY! She does not want an IRS audit!

Additionally, she needs to set up this homeschool organization properly with nonprofit corporation, getting an EIN, and then applying for tax exempt status with the IRS, ASAP! I can help with that.

Download my list of steps to take to set up a nonprofit homeschool organization.

 

Please homeschool leaders, do not set up Paypal accounts, bank accounts or EINs in your personal name. Establish an organization and conduct business in the organization’s name only. Otherwise, you may face a complicated tax issue like this poor leaders.

Carol Topp, CPA

Using Paypal in a homeschool group

Paypal logo

Over at the I am a Homeschool Group Leader there was a discussion on using PayPal to collect fees.

Here’s some of the tips and advice given:

We set up a PayPal and separate bank account. It has made it so easy for accepting payments. Our registration is $100. If they pay by PayPal, we’ve included a $4 fee to cover the finance charges. Nobody has complained. Others have mailed in checks for just the $100.

 

We set up a co-op email & registered the PayPal account to that email exclusively. We didn’t think to increase the fees to cover the PayPal fees, but will probably do that next year – since they are something like 2% plus $.30 cents per transaction. This has made the PayPal account entirely for the co-op – even the email comes up with the co-op name in the email. All deposits or payments to or from the PayPal account will only be linked to our co-op account. Similar to another member, myself, and the treasurer have access to our bank accounts and PayPal accounts and they are checked very regularly.

 

One other thing… you have to connect this to an email address that does not yet have a PayPal account (last time I talked to PayPal, they were discussing changing this) so you may have to set up an email for your group, if you don’t already have one.

 

Any other payments can also be received there for other things like field trips, parties, etc. I love it. Makes keeping the books so easy. There are a few people who still don’t use PayPal (especially in light of their new privacy policy), so we do still keep some records the old fashioned way.

 

You can setup a nonprofit account with PayPal so your fees aren’t as high. We only use PayPal for enrollment so we opened the account for two months. Closed it with no issues and will reopen next year during enrollment. No need to pay monthly fees for an account we aren’t using accept once a year.

 

We started using PayPal as soon as we started using Homeschool-Life website. It has been so much easier for our treasurer than cash & checks and tracking people down. We use this site to help us figure our PP fees https://thefeecalculator.com/
We ne
ed to look into converting it to a non profit account since we have our official 501 status. I believe the fees are lower then. Our families love the convenience and the generated receipt from PayPal.

 

Does your homeschool group use Paypal? Anything to add? Comment below or on my Facebook page.

Carol Topp, CPA

Group using personal Paypal account

money_exchange_100Hi Carol,

Our (homeschool group’s) yearbook is looking take in the money thru my personal paypal account, then deposit it into an separate bank account so that our Assoc. does cross over the $5000.00 mark. How is this done so that I don’t have to claim the money as extra income.

Currently the association is trying to do a paypal account not just for yearbook for membership dues, they are hesitant because they set up the a paypal account under non-profit, paypal is wanting proof of this and we don’t have it. I suggested that they explain to paypal that they we are a Unincorporated Non-Profit Assoc. and it should be fine.

Sandy in TX

Sandy,

The ideal way to operate is to set up a Paypal account for the association/homeschool group and not run anything through your personal Paypal account.

I understand from other homeschool leaders, that Paypal expects to see proof from the IRS of tax exempt status. They may also accept a nonprofit incorporation certificate from your state. They told one homeschool group they would accept “certified Articles of Incorporation.”

One homeschool registered with Paypal as “Category: Education, Subcategory: Elementary and secondary schools.” While not as accurate as “Charitable/Nonprofit”, it got the job done!

If your organization is not a nonprofit corporation or doesn’t want to be classified by Paypal as as a school, then tell your board that you are using your personal Paypal account and have them record it in the minutes of a board meeting. (“Sandy agreed to allow use of her personal Paypal account for the yearbook project”) Keep a very clear paper trail just in case you are ever audited by the IRS. Keep paper records of every transaction and especially the transfers in and out of the Paypal account. Make print outs from Paypal and file them away with wherever you keep your tax return information. (Do NOT send them to the IRS with your tax return.)

Anyone had problems setting up a Paypal account for their homeschool organization? Id like to hear your experience.

Carol Topp, CPA