Since 1998, PayPal has served as a payment processor. The company has long been a staple of the virtual economy, but it recently entered the cryptocurrency space. In 2020, PayPal declared that it would allow users to purchase, hold and sell cryptocurrency on its platform.
Moreover, according to their plans, cryptocurrencies will soon be accepted as a funding source for transactions at its 26 million merchants worldwide.
This is good news for crypto enthusiasts using PayPal for years to make payments and transfers with their virtual currencies.
However, this move will also introduce a new set of cryptocurrency tax regulations.
How do crypto taxes work?
As per the IRS (Internal Revenue Service), any cryptocurrency is categorized as a property and not as a currency.
This implies that there is a taxable transaction whenever you sell, exchange, or dispose of cryptocurrencies to make a purchase, just like any other assets such as stocks, real estate, and bonds.
Investors will have to record this gain on their tax return, and they will have to pay capital gain taxes on it. How much the investor will pay in cryptocurrency taxes depends on various factors, including their tax rate and whether they made a short-term or long-term gain.
Users of PayPal are therefore required to file tax returns if they sell or otherwise dispose of their cryptocurrencies through the PayPal cryptocurrency hub.
What is the PayPal crypto hub?
PayPal crypto hub is a platform that will allow the buying, selling, and storage of crypto for its worldwide users. PayPal launched it in 2021, and through it, crypto holders can make purchases at any of the 26 million PayPal merchants.
Since the PayPal crypto hub is not fully developed, currently, you can buy and sell only the following cryptocurrencies; Bitcoin, Litecoin, Ethereum, and Bitcoin Cash.
How do you report PayPal crypto taxes?
Now, let’s talk about how PayPal’s crypto tax is levied. You have four options in the PayPal crypto hub: buying, spending, selling, or holding the crypto.
When a person buys crypto, there is no tax. Further, when one holds the crypto, there is no tax. However, when someone sells or spends crypto, they incur a capital gains tax.
Users can instantaneously convert their preferred cryptocurrency balance to fiat cash, with a certainty of value and no extra costs, when they spend crypto for any goods or services.
Any capital gains (sale price – purchase price) will be subject to capital gains tax, not the total value of the transaction. The person who incurred the capital gain must include a section for capital gains and losses related to cryptocurrencies in their Tax Return.
Each disposal (sale or expenditure) must be reported on IRS Form 8949, together with your net capital gains and losses on Schedule D.
Example: Using bitcoin to buy a car on PayPal
Suppose Sophia is looking to purchase a $15,000 car from a PayPal vendor, and currently, the price of bitcoin is $15,000.
Sophia purchases the car by giving one bitcoin (BTC) in her PayPal wallet for the transaction. When Sophia initiates the transaction, PayPal translates one bitcoin into $15,000 and sends the money to the merchant.
However, Sophia purchased bitcoin for $10,000 a few years ago, and now its worth is $15,000. Thus, she is liable to pay long-term capital gain on the bitcoin. The tax rate will depend upon her total taxable income.
Earlier cryptocurrency withdrawals were not allowed from PayPal, and one had to sell their cryptos to close the account.
However, on June 7, PayPal announced that users can now withdraw their cryptos to third-party exchanges, hardware wallets, and crypto addresses. It further allows sending cryptos to friends and family.
Prioritize other important aspects of your finances, like savings and taxes, before purchasing cryptocurrency, whether through PayPal or not.
No matter the platform you choose, spend some time studying long-term cryptocurrency investments, keeping your money secure, and navigating market fluctuations.
1. Can you transfer bitcoin to PayPal?
Earlier cryptocurrency transfers or withdrawals were not allowed from PayPal, and one had to sell their cryptos to close the account.
However, on June 7, PayPal announced that users can now transfer or withdraw their cryptos from/to third-party exchanges, hardware wallets, and crypto addresses. It further allows sending cryptos to friends and family.
2. What are PayPal crypto fees?
The amount of cryptocurrency you purchase or sell determines the transaction costs.
|$1 to $4.99||$0.49|
|$5 to $24.99||$0.99|
|$25 to $74.99||$1.99|
|$75 to $200||$2.49|
|$200.01 to $1000.00||1.80%|
|More than $1000.01||1.50%|
3. How much crypto can I buy on PayPal?
With as little as a $1 investment, PayPal is one of a select few well-known mobile and online payment systems that let customers in the United States purchase, sell, and keep cryptocurrencies.