PayPal told merchants it will be required to report to the IRS the total payment volume received by PayPal customers in the U.S. who receive more than $20,000 in payment volume in a single year and receive more than 200 payments in a single year.

The new requirement is a result of the Housing and Economic Recovery Act of 2008 recently passed by Congress and signed into law on July 30, and applies to all payment providers.

PayPal's Senior Federal Government Relations Officer Ken Swab wrote on the PayPal blog that the new rule takes effect in 2011, so the first reports will go to the IRS in January 2012. "Our goal when the legislation takes effect is to make it easy for PayPal merchants who fall under the provision to report their taxable incomes," Swab wrote. He went on to say:

I want to emphasize that this new law affects a small percentage of PayPal customers. Early versions of the legislation would have required PayPal to report total payment volume of many more customers, including those who received as little as $600 per year. We worked hard to educate Congress about the unique features of PayPal and the unique nature of our customer base. We also educated lawmakers about the many PayPal customers who receive money from others for reasons not related to operating a business.