Facebook Marketplace has started asking some users to submit their tax info like Social Security number or tax identification number. This has led many people to wonder why Facebook needs this information and what they plan to do with it.
What is the new tax info request on Facebook Marketplace?
When selling items on Facebook Marketplace, some users are now seeing a pop-up that says:
“Provide Tax Info – Please submit your tax info so we can meet our legal obligations. We require Social Security number or tax ID number, as well as your full name as it appears on your tax return.”
Users are being asked to enter their Social Security number or tax ID number, as well as their full name exactly as it appears on their tax return. This information is required before they can continue selling items on Marketplace.
Why is Facebook asking for tax info on Marketplace sales?
Facebook says they are legally required to collect tax info once users meet certain thresholds for sales activity and income earned from those sales. This requirement comes from new tax reporting rules that went into effect in 2021:
- The American Rescue Plan Act
- The Internal Revenue Service (IRS)
These new rules require platforms like Facebook to report user earnings from sales of goods or services to the IRS. This applies to all users earning $600 or more in a calendar year from activities like Marketplace sales.
American Rescue Plan Act
The American Rescue Plan Act was passed in March 2021. It includes a provision that requires third-party payment processors like Facebook to report earnings for users who exceed $600 in a calendar year to the IRS.
Prior to this legislation, the reporting threshold was set at $20,000 and 200 transactions per year. But the act drastically lowered it to make tax compliance on side income more consistent and transparent.
IRS Reporting Rules
Along with the American Rescue Plan Act, expanded IRS reporting rules also went into effect in 2021. These rules require all third-party payment processors to collect tax information on earnings over $600 and report it to the IRS.
The IRS reporting requirements apply to payment processors like:
- eBay
- Etsy
- PayPal
- Venmo
- Cash App
- And more
So Facebook Marketplace is now legally obligated to collect tax info once users exceed $600 in annual earnings. This applies to all income earned from selling items, providing services through Marketplace, and any other miscellaneous earnings.
What happens if you don’t provide tax info on Facebook Marketplace?
If you do not provide the requested tax information, Facebook says you will not be able to continue using Marketplace.
When you first see the pop-up asking for tax info, you have the option to “Provide Info Later.” But Facebook will prevent you from posting any new listings or completing any new sales until you submit your tax ID number and other info.
If you repeatedly ignore the request, Facebook will eventually take down all your existing listings and prevent you from selling anything else on Marketplace.
How will Facebook use your tax info provided?
Facebook says they will use your tax information strictly for fulfilling tax reporting requirements:
- Reporting your earnings to the IRS if you exceed $600 in a calendar year
- Providing you a 1099-K form summarizing your annual Marketplace earnings
They claim your Social Security number or tax ID number will be kept confidential and used solely for internal tax accounting purposes.
Common concerns around providing tax info to Facebook
Many Marketplace users have voiced concerns and reluctance around handing their Social Security number and other private tax details over to Facebook. Some of the common issues raised include:
Privacy concerns
Facebook does not have the best reputation when it comes to protecting user privacy and data. People worry about trusting the company with extremely sensitive information like Social Security numbers.
Identity theft risks
Providing a Social Security number online always carries some risk of identity theft if the data is compromised. Though Facebook claims they will keep it confidential, any potential for leaked Social Security numbers raises alarms.
Tax liability fears
Some sellers worry providing earnings data to Facebook and the IRS will increase their chances of being audited. There are also concerns around whether hobby income from side gigs could impact eligibility for government benefits like Medicaid if reported to tax authorities.
Confusing tax rules
Most casual Facebook sellers have probably never reported their minor Marketplace income in the past. So the new tax rules are unfamiliar and confusing to many occasional sellers who use the platform for side income and hobbies.
Best practices for providing tax info on Facebook Marketplace
If you are required to submit tax information to keep using Marketplace, here are some tips to protect your data:
- Enter your tax ID number directly rather than uploading a photo of your Social Security card, which can expose your SSN more widely if compromised.
- Use two-factor authentication on your Facebook account to add an extra layer of login security.
- Consider providing the minimum info required and withholding your SSN if possible. Some users have reported being able to enter just a tax ID number without Social Security.
- Remove your Facebook birthday, address and other personal details from your public profile that could aid identity theft if your SSN is leaked.
Also make sure you understand your tax obligations when reporting Marketplace or other side income. Consider consulting a tax professional if needed to ensure you comply with the new rules.
Frequently asked questions about Facebook’s tax info request
Do I have to provide my SSN or tax ID number to Facebook?
If you want to continue selling products and making money on Facebook Marketplace, yes. The new IRS reporting rules and American Rescue Plan Act require Facebook to collect this info once earnings exceed $600 per year.
What if I make less than $600 per year on Marketplace?
If your total annual earnings are under $600, Facebook says you will not have to submit tax information yet. But they will continue tracking your income, and the prompt will appear once you reach the $600 threshold.
Can I use a Tax ID Number instead of Social Security for Marketplace?
Yes, Facebook allows either a Social Security number or an Individual Taxpayer Identification Number (ITIN) issued by the IRS. Using a tax ID number may help ease privacy concerns around providing your SSN.
Are Facebook Marketplace earnings taxable?
Yes, all income you earn on Facebook Marketplace is generally considered taxable by the IRS. So you are responsible for reporting it and paying any owed taxes if you exceed $600 per calendar year.
Does Facebook report my earnings to the IRS?
For users who earn over $600 in a calendar year, Facebook is required to provide an IRS Form 1099-K reporting your total annual Marketplace earnings. You are responsible for declaring this on your tax return.
How much tax do I owe on Marketplace sales?
The amount of tax owed on Marketplace earnings depends on your total annual income, deductions, and tax bracket. Roughly, you can expect to owe 10-37% of your net Marketplace profits in federal income tax. You may also owe state taxes on Marketplace sales in certain states.
Can I get in trouble for not reporting past Marketplace income?
You may face penalties and interest charges from the IRS if you fail to report taxable Marketplace earnings. But the IRS does offer voluntary disclosure programs to allow people to report previously undeclared income without criminal consequences.
Does Facebook report my data to other third parties?
Facebook claims they only share your tax information with the IRS to fulfill reporting requirements. They state that your data is not provided to any other third parties or used for other purposes.
The bottom line
Facebook’s new requirement to collect tax information from Marketplace sellers is driven by recent laws and IRS rules aimed at increasing tax compliance for online side income. Though providing sensitive data like your SSN raises valid privacy concerns, failing to comply means you won’t be able to continue using Marketplace.
Make sure to protect your information as much as possible when submitting tax info. And consult a tax professional if you need help understanding reporting requirements or tax obligations on your Marketplace earnings.