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My bank account is linked with my paypal account. I know how to transfer money form my paypal account to my bank account. What I am wondering is that if I receive money in my paypal account, does my bank knows this?

  • The money sitting in your PayPal account earns no interest or dividends, so the IRS and state departments of Revenue don't care how much money sits in your PayPal account. (Your ex-wife's divorce lawyer cares, and you should too, because it's not insured but those are completely separate issues...) – RonJohn Jul 2 at 23:30
  • The current wording of this question is significantly different than the pre-edit wording. Just being concerned about whether a bank "knows" about your paypal transactions is very different than understanding how paypal themselves may or may not report information to the government or other parties in a way that impacts your income or net worth. Which of those topics are you actually trying to ask about? Because if you're really concerned about income or net worth, the current wording of the question is way too narrow. – dwizum Jul 3 at 12:43
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When you link a bank account to your PayPal account, all you are doing is saving your bank account information so that PayPal can pull (withdraw) or push (deposit) money from/to your bank account. In a sense, you can think of PayPal like a separate bank (even though they aren't truly a bank). When you deposit money into bank 1, bank 2 doesn't know about, even if you have set up the ability to transfer money from bank 1 into bank 2.

  • Could you brief more what kind of certain transactions does the paypal report to gov? – amitoz Jul 2 at 23:14
  • @amitoz - I've received a form called 1099-K from PayPal before, which is US specific. The rules vary by country. Here's more info on the US specific form: paypal.com/us/smarthelp/article/… – TTT Jul 2 at 23:18
  • @amitoz paypal doesn't report transactions to your bank, paypal is analogous to another bank account. Whatever a bank reports to the government, paypal reports too. so if the question was about what the tax revenue department knows about, paypal is within what they know. if the question is about net worth manipulation to anyone thats NOT the tax revenue department and not a courtroom, there is plenty you can do. – CQM Jul 2 at 23:20
  • @amitoz - I hope my use of the word "transaction" wasn't confusing, I just fixed it. It's really just an aggregate if certain conditions are met. I agree with CQM, tax evasion is about you not reporting your income. That could be income you receive in cash, or income in PayPal, or income in a regular bank. You can still perform tax evasion in any of those cases, and of course you may pay steep fines and potentially go to prison for it. – TTT Jul 2 at 23:24
  • To be clear, the 1099-K filed by paypal based on your transactional volume is for reporting income via "payment card systems." It is not analogous to reporting on a "bank account" in the traditional sense. Paypal is essentially regulated like a payment processor, not a deposit bank, even if you "deposit" large amounts of money in your paypal account and leave it there. – dwizum Jul 3 at 12:41
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No, your bank does not.

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    Evidence for your assertion -- which I also think to be true -- is required. (This is why I sometimes "answer" in the Comment section...) – RonJohn Jul 2 at 23:02
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    I don't think anything, this is the answer. Your bank doesn't know, you can have multiple banks and the bank isn't the arbiter of your income or tax liability. You shouldn't answer questions in comments, you should comment in comments. – quid Jul 2 at 23:08
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    I like this answer because it's the answer. And it brings back memories: money.stackexchange.com/a/83537/17718 (Note I eventually changed it to a community wiki to stop the banter so we could all enjoy it for what it was.) – TTT Jul 2 at 23:27
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    @TTT, I agree, sometimes the answer is just "no" – quid Jul 2 at 23:44
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No. Different financial institutions do not share data like that, for competitive reasons at the very least. Deposits into PayPal stay in the PayPal system until you do a transfer, unless you have set up something special.

If your logic is that the banks report transaction data to the IRS and PayPal differs from them by not doing so -- that is a wrong assumption. You should prepare for, and even count on, anyone involved in you receiving money reporting that income to the IRS. That does not automatically mean you pay tax on it; but IRS will be looking for some accounting of it when you file your 1040 at the end of the year.

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The answer is yes, if you gave them permission to. To give them permission just give your bank the username and password, and accept the terms.

As stated in the question many financial institutions do allow you to easily transfer funds to and from other financial institution. But that doesn't mean they can see the balance of the account, or even any transactions.

But there are services that allow financial institutions to aggregate all your accounts. Your financial institution contracts with a third party who stores all your login information for your banking and investment accounts, and then when you go to the website you can see the account balances and transactions. I believe that PayPal accounts can be accessed this way. Many mutual fund companies do use this service so that you can see all your investment accounts at the same time.

This is a service that many people use. It is similar to what Quicken or Mint or any online service that downloads banking information does.

The responsibility of reporting income to the tax authorities is the responsibility of the "bank" that holds the funds, it is not the responsibility of the aggregator service or the "bank" that uses the aggregator service. But once you give the external login information to a financial institution, then your are potentially exposing your transactions to other financial institutions.

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    I agree with your last sentence, but I don't quite see how that leads to your first sentence. Are you implying that PayPal would potentially provide individual account data to another bank without the account owner's permission? (That seems unlikely to me.) – TTT Jul 3 at 18:24
  • The technology has changed, and the comfort level with these systems is growing. It is likely that in the future the number of people not using these services will be the minority. – mhoran_psprep Jul 3 at 19:12

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