PayPal Crypto Taxes: Everything You Need to Know
Want to buy, sell, or hold crypto with a trusted payment processor? Well, you can do it all with the PayPal crypto wallet. PayPal added crypto back in 2021 and with more than 346 million active PayPal accounts - it might just be the start of crypto officially becoming mainstream. It’s great news for those totally new to crypto and seasoned investors alike - but you shouldn’t overlook the tax implications of PayPal crypto. We’re looking at everything you need to know about PayPal’s crypto wallet, including PayPal crypto taxes.
What is the PayPal crypto wallet?
In October 2021, PayPal announced the launch of the PayPal crypto wallet. This new service would let PayPal customers around the world buy, sell, and store crypto - as well as spend it at any of the 26 million PayPal merchants. Also known as the PayPal crypto hub, the PayPal crypto wallet is still in its relative infancy, so at the minute you can only buy and sell four different cryptocurrencies.
What crypto can you buy on PayPal?
Initially, buying crypto using the PayPal Crypto Hub meant you couldn't actually move your crypto off the platform, unlike with other exchanges. However, you can now transfer your crypto to your own non-custodial wallet.
What are the PayPal crypto fees?
As with all crypto - you’ll pay a fee for different transactions. When you buy or sell crypto on the PayPal crypto hub the fees are as follows:
|$1 - $4.99
|$5 - $24.99
|$25 - $74.99
|$75 - $200
|$200 - $1,000
Meanwhile, when you spend crypto using PayPal - it’ll convert your crypto into USD at no extra charge - so there are no fees for using this service.
As well as this, there are a number of other transaction fees and limits you need to be aware of. You'll pay network fees whenever you transfer crypto to an address outside PayPal (although it's free when you transfer to another PayPal account). As well as this, there are a number of transaction limits to consider:
Weekly purchase limit: $100,000.00 U.S. dollars
Weekly send limit: Crypto assets totaling the equivalent of $10,000.00 U.S. dollars
Minimum send transfer to other PayPal Crypto Wallets: Crypto totaling the equivalent of $0.01 U.S. dollar
Minimum send transfer amount to other crypto wallets: 0.01 BCH, 0.001 BTC, 0.01 ETH, 0.01 LTC.
PayPal crypto taxes
The simplicity of the platform has a silver lining - it means your PayPal crypto taxes are pretty straightforward.
You can only make a few different types of transactions using your PayPal crypto wallet. Each has a different tax treatment like so:
Buying crypto: tax free!
Holding crypto: tax free in most countries (some countries with a Wealth Tax may apply tax to crypto assets held if your total net worth is over a given amount).
Selling crypto: Capital Gains Tax
Spending crypto: Capital Gains Tax
Transferring crypto: tax free!
As you can see the good news is that buying and holding crypto is almost always tax free, depending on where you live. However, there are a couple of countries where technically holding crypto may be taxed via a Wealth Tax - like Spain, the Netherlands, Switzerland, Italy, and France.
So the only tax you’ll pay on your PayPal crypto is when you sell your crypto for fiat currency - like USD - or spend your crypto on goods or services. This is because crypto is seen as a capital asset - not a currency - which makes it subject to Capital Gains Tax rules. When you dispose of a capital asset by selling it, trading it, spending it, or (sometimes!) gifting it - you’ll pay Capital Gains Tax. You can learn more about US crypto tax in our guide.
Don’t worry - you won’t pay Capital Gains Tax on the full amount, only any perceived capital gain (profit). A capital gain or loss is the difference in value from when you bought your crypto to when you disposed of it. If the value of your asset has increased since you bought it, you’ll have a profit (capital gain) and you’ll pay Capital Gains Tax on that profit. You can also include any fees when calculating how much profit you’ve made, this is easier to understand with an example.
You buy 1 ETH for $4,200 using the PayPal crypto wallet. You pay 1.50% in fees, so $63. This makes your cost basis for the asset $4,263.
You later sell your 1 ETH on the PayPal crypto hub for $5,000. You pay another 1.50% in fees, so another $75 which you can add to your cost basis. You need to figure out how much profit you’ve made, so just subtract your cost basis from your sale price.
$5000 - $4338 = $662. You’ve made a capital gain of $662, which you’ll pay Capital Gains Tax on.
The exact amount of capital gains tax you’ll pay depends on how long you held your crypto and how much you earn in regular income. You can learn more about US Capital Gains Tax rates in our guide.
How do you report PayPal crypto taxes?
So now you know if you sell or spend crypto on the PayPal crypto hub - you need to pay tax on it. But how do you report your crypto taxes to the IRS?
You report your crypto capital gains and losses to the IRS as part of your Individual Tax Return. You need to list each disposal (sale or spend) on IRS Form 8949 and your net capital gains and losses on Schedule D. For a step-by-step guide on reporting crypto to the IRS, check out our US Crypto Tax Guide.
Previously reporting PayPal crypto taxes was pretty easy as your crypto was effectively locked on the platform. This meant PayPal could easily issue crypto tax forms to users that have the correct calculations and cost basis and you could file this with the IRS. However, this has changed as you can now transfer crypto to and from your PayPal wallet.
This doesn't mean your PayPal crypto tax form will definitely be incorrect. It all depends on whether you've transferred crypto from your PayPal wallet. Let's dive a little deeper into it.
PayPal crypto tax forms
PayPal issues crypto tax forms for users with crypto investments - and you've got a couple of options on what to download depending on how you've used your wallet, mainly, whether you've transferred to or from your wallet. There are two main documents you'll be able to download:
Crypto Transaction History CSV file
Crypto Gains and Losses CSV file
You can download these forms from the statements and tax center section of your PayPal account.
If you've only bought, held, traded, and sold crypto assets on PayPal and have made no transfers at all - you can likely use your gains and losses CSV to file as this should be correct. Please note for US investors, the gains and losses CSV file only uses the HIFO accounting method, so this may not result in the most desirable tax outcome for your individual circumstances.
However, if you have transferred crypto to or from your PayPal crypto wallet - it's a little more complicated as PayPal will be unable to track your cost basis and therefore your gains and losses CSV file may be incorrect. In this instance, you can download the Crypto Transaction Statement from your PayPal account. This is a CSV file that includes the date you acquired/sold a given cryptocurrency, the quantity of crypto, fees, the value, and the transaction ID. You can then upload this to a crypto tax calculator like Koinly to let it calculate your PayPal crypto taxes for you.
Does PayPal report to the IRS?
Yes. The IRS made it mandatory for all payment processors (like PayPal) operating in the US to provide information to the IRS about customers receiving payments on their platform. PayPal previously issued 1099-K forms for crypto. Whenever you receive a 1099-K form, the IRS receives an identical copy. As well as this, PayPal may issue other 1099 forms for other kinds of income.
For crypto taxes, use Koinly!
If you’re only using PayPal to buy and sell crypto then your crypto tax reporting is relatively straightforward! But the reality for most crypto investors is that they’re using multiple exchanges, wallets, and blockchains for their crypto investments - which can make crypto tax reporting a real headache.
Fortunately, Koinly makes crypto tax simple. All you need to do is sync the wallets, exchanges, and blockchains you use with Koinly via API integration or through a CSV file import of your transaction history. Koinly connects easily with PayPal!
Once you’ve done this, Koinly calculates your cost basis, capital gains and losses, crypto income, expenses, and more and summarizes all of this for you (for free!) in a tax summary.
If you’d like to download a tax report, upgrade to an affordable Koinly plan and you’ll be able to download a variety of tax reports based on your location including Form 8949 and Schedule D, Schedule 1, TurboTax report, and TaxAct report.
Koinly makes crypto tax simple. Connect Koinly and PayPal today.