If you do business online today, odds are you’re at least somewhat familiar with PayPal. Homeschool parents take advantage of its convenience to pay for field trips, classes, and fees from the comfort of home or via mobile app. No need to chase down event coordinators or drop checks in the mail.
Homeschoolers who use PayPal may have seen conflicting instructions on how to properly tag their transactions. One person or group may instruct you to tag your field trip money as being sent to “Family and Friends” while another may require you to choose payment for “Goods and Services.” Knowing what to do requires understanding some of the details regarding Sellers and transactions. We contacted PayPal for official clarification. Gwen from the Fraud Department was happy to help us out.
A Seller can seek to profit off transactions or keep none of the funds that change hands. If the Seller charges the Buyer a fee or provides a good or service for which he keeps all or part of the money, he owes PayPal something for the transaction. In that case PayPal intends for the transaction to be marked as payment for “Goods and Services.”
If the Seller simply collects money in order to make a group payment to another party and is not keeping any of that money for himself, no fees are owed to PayPal. In that case, the Seller may direct Buyers to tag their transactions as money sent to “Family and Friends” and thus avoid incurring fees. The difference is whether or not the Seller profits from the transaction.
“But, what a minute,” you say. “I know so-and-so’s group is all volunteer and keeps none of the money they collect. Yet they are required to use a commercial account and pay fees to PayPal.” That is accurate, too.
Volunteer groups who take in regular, substantial amounts of money may be required to use commercial accounts. An example might be a statewide group that arranges multiple field trips or expensive events. Even though they may be all volunteer and charge no fees, their activities and transactions likely involve substantial amounts of money. It would be unwise for Buyers to mark those transactions as anything other than for “Goods or Services.” To mark as “Family and Friends” leaves the Buyer with no protection whatsoever in the event of a problem. That is not a situation that PayPal endorses.
Gwen assured me that PayPal keeps their Buyers’ best interests in mind by using algorithms to monitor for unusual activity in personal accounts. Some of the situations they look for include an excessive number of transactions received by a Seller from “Family and Friends.” Unusually repetitive transactions may also call for a closer look. In those cases PayPal may investigate a Seller’s account to ensure that Buyers’ best interests are protected. PayPal may contact the Seller and require him to convert his account from “personal” to “business” to better safeguard Buyers’ activities.
Sellers with commercial accounts must pay fees on all their transactions. On the other hand, when it comes to personal accounts, PayPal leaves it up to the Seller to instruct Buyers on how to tag their transactions. If no profit is made from the transaction, the Seller may correctly instruct Buyers to tag as “Family and Friends” with no fear of wrongdoing.
But… Buyer Beware. If you as the Buyer tag a transaction as “Family and Friends,” there is no protection whatsoever in case of a dispute. You have no recourse if the money is misappropriated or lost. You cannot file a claim with PayPal for fraud protection on money sent to “Family and Friends.”
The good news is that most of us use PayPal for small amounts paid to non-profit organizations or community volunteers not pocketing any of the funds. In that case, PayPal does not intend to charge fees. It is acceptable to mark those transactions as “Family and Friends” as long as the Buyer is comfortable foregoing fraud protection. In that case, most of us have no problem using “Family and Friends” to save ourselves a little money — especially with small transactions like $5 here for admission to a museum, or $7 there for a theater ticket.
If you the Buyer want that extra protection, you may mark any transaction as payment for “Goods or Services” even if it goes into a personal account and even if no money is made by the Seller off the transaction. This is recommended by PayPal for transactions the Buyer deems substantial. However, the Buyer should expect to add those fees on to his payment to the Seller.
PayPal currently keeps 2.9% of “Goods and Services” transactions plus a 30-cent fee per transaction. You as the Buyer will most certainly be expected to pay that amount over and above the original cost. Most Sellers cannot and do not cover those fees but must pass them on to Buyers. It is up to each individual Buyer to decide whether the extra to cover the fee is unnecessary given the situation or money well spent.
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