Why is PayPal charging me a fee to receive money? A key foundation in running your own business is determining how you will collect payment from your customers or clients. Among the free payment platforms available today, PayPal is one of the most popular. Yet “free” is more of a relative term, as using PayPal inevitably involves fees being deducted from your payments.
If you’re trying to decide whether or not PayPal is the right avenue for you to receive money when collecting payment for your work, the following guide is everything you need to know about PayPal fees.
Why is PayPal charging me a fee to receive money?
PayPal offers two types of accounts to their customers: a personal account and a business account. The account you use will depend on your specific needs, but if you’re using PayPal for business purposes, then you will need to set up a business account.
A personal account is only meant to be used for transactions between friends and family members. Because these accounts are meant for gifting money or repaying a friend for lunch—not billing a customer for a product or service—personal accounts are not subject to additional fees beyond credit card processing! In the past, PayPal users could take advantage of this fee-free receipt of funds by marking specific transactions as “personal,” but as of July 28, 2022 you can only use this feature with a Personal account.
As a single business owner selling products or services and billing clients via PayPal, you will need a business account. With a business account you can send invoices under your company name and accept debit, credit, or ACH (bank transfer) payments for a competitively low fee. Business accounts can also add up to 200 employees to the account with limited access, set up a customer service email address, and access additional features such as PayPal Checkout to create a more streamlined customer experience.
Because we’re looking at PayPal from a primarily business perspective, we will be focusing the remainder of this article on PayPal fees for Business accounts.
An Overview of PayPal Fees
When you use PayPal to collect payment directly from clients or collect payment via invoicing software integrated with PayPal, you should be prepared for any fees that might accrue and be deducted from your payout. As the recipient of funds, you are responsible for all PayPal fees. Fees for receiving money are typically a fixed fee plus a percentage of your transaction total. PayPal fees also vary by payment type, currency received, payment method, and whether the transaction is domestic or international.
If you issue a refund to a customer or client, you will be refunded for the percentage fee, but bear in mind that PayPal will not return the fixed fee to you. Fortunately, this is usually a relatively small fee of around $0.49 or less.
How Can I Avoid PayPal Fees?
PayPal charges these fees to cover credit card processing fees, international transaction conversions, and to charge for use of their platform. The fees will vary depending on where the money is coming from (domestic or international), the total amount billed, the payment method, and the type of PayPal account. No one wants to pay extra fees, and those percentages can really add up for high value transactions. Here are four ways to reduce the amount or even avoid PayPal fees when receiving money for your business:
Bill Them to Your Client
A common way to negate PayPal fees is by passing them on to your customer or client, but this can get tricky in terms of ethics and legality. Per PayPal’s user agreement, you agree to not surcharge your clients for transaction fees. This makes it a breach of PayPal’s terms to charge the fees to your client, however, there is a workaround.
If you do opt to charge your clients to help cover associated fees, do so by labeling it as a “handling fee” and charging the same fixed amount to every client for every transaction. This is something you might see in a local coffee shop, where they charge a fixed fee for credit card transactions under a certain amount. For example, if a customer purchases a small cup of coffee for $3.49 using a credit card, the coffee shop may tag on an additional $0.50 charge to account for the processing fee. Thus the customer pays $3.99 plus tax for their cuppa joe.
Mark Fees as Deductions
Any fees that you pay for business transactions can be marked as deductions for your business taxes! While this doesn’t completely eliminate the fees, it does decrease the amount you’ll owe in taxes later on, which is always a nice bonus for your business budget. Keep track of your write-offs in a spreadsheet or with a handy deduction tracking tool.
Request Merchant Rates
If your PayPal account is in good standing and you make at least $3,000 each month, you can request Merchant Rates and lower your fees to 1.9% + the currency-based fixed fee! You must apply for this special rate and maintain a quality account, but if you are confident in consistent earnings, then this route can save a lot of money.
Wire Transfer through Fee-Free Banking Instead
PayPal isn’t the only way to collect funds from your clients or customers. If you want to completely avoid PayPal fees, the only real way is to forgo PayPal altogether and opt for an alternative payment collection method. When you set up direct deposit with your clients through a fee-free banking platform like Lili, you don’t have to worry about any processing fees, meaning you keep every penny of that hard-earned cash.
PayPal does have fees in some cases — here’s how to avoid them
While you can transfer funds from your PayPal account to your bank for free, there is a fee for instant transfers: 1% of the transfer amount, capped at $10 per transaction.
You’d also pay a fee to send money to a friend or family member using a debit or credit card. In that case, the fee would be 2.9% plus a fixed amount that varies depending on the currency used.
There are additional fees for sending money to people who live in other countries. For example, you’d pay at least 5% of the amount you planned on sending, plus $0.99 to $4.99, depending on your circumstances.
If you were to use a credit or debit card to fund these transfers, you’d also pay a funding fee of 2.9% plus a fixed fee that varies depending on the receiver’s country of residence.
Finally, if you were to sell items and use PayPal as your payment processor, you’ll pay fees on each transaction:
- Sales within the US: 2.9% plus 30 cents.
- Discounted rate for eligible charities: 2.2% plus 30 cents.
- International sales: 4.4% plus a fixed amount which varies by country.
- PayPal Here card reader fee: 2.7% per swipe, or 3.5% plus 15 cents for manual transactions.
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