Paypal isn’t free, even if it is convenient. In fact, when most freelancers do their PayPal 1099 taxes at the end of a year, they should include PayPal fees as a deductible expense against earnings. While the exact amount you’ll pay per transaction will vary based on the amount you received, here is the current formula:
There is no fee for opening a PayPal account.
The cost for each sale or payment received is 2.9% plus $0.30 USD (volume sellers may get a discount) for sales within the US.
There is no fee to transfer funds to your registered checking account; it costs $1.50 to have a check issued; transfers via debit card cost $.25.
Additional fees, such as chargeback fees or insufficient funds fees, may also apply.
On a $500 job, for example, you’d pay $22.30 in PayPal fees for receiving the money. Then, it would cost an additional $1.50 to have a check issued.
For a freelancer who does $35,000 in sales each year, with 60% of those sales coming through PayPal payments, you can expect to pay fees on $21,000. This would be a minimum of $924.30 in fees, but likely more (since the $.30 charge is per transaction, it would really depend on the transaction numbers.)
Considering that you are paying up to 5% of your annual earnings in fees to PayPal, it is understandable why some freelancers are looking for an alternative.
One way that freelancers are getting around the PayPal fees when receiving money is by bundling them into their service costs. If you normally charge $250 for a blog post, you can choose to charge $265 and more than cover your PayPal fees. The client doesn’t necessarily know what all goes into your pricing formula, so this is a safe way to feel good about the value you provide while also keeping your expenses in check.
(Note that PayPal prohibits passing on the cost of fees as a fee “surcharge”. Just as a restaurant can’t charge you more for using a credit card vs. cash, you can’t charge an additional fee for accepting PayPal. You can, however, charge a bit more across the board to account for your PayPal expenses. Be sure that you aren’t adding this extra charge as a line item on your invoices. Simply bundle it into your service cost.)
Final thoughts on PayPal for freelancers
In the end, it’s hard to avoid using PayPal entirely. Some clients insist on using it, and it’s really one of the most convenient ways to get paid – and in a hurry. When tied to a PayPal Mastercard, it can simultaneously serve as a tool for both tracking expenses and payments. (Many freelancers use their PayPal payments to then pay off their card, making it easy to keep debt paid off each month).
For the freelancer on a strict budget, losing a bit of each paycheck to Paypal may not be an appealing thought. Many have successfully ditched the processing giant altogether. For these freelancers, however, it mostly works because they have just a few large retainer clients who have no problem paying via electronic bank transfer. The vast majority of freelancers, however, have over a dozen clients a month, and even more in the course of a year. It’s a very tedious process to set up a new or one-off client for a check or direct deposit situation – not to mention a bit scary.
In truth, PayPal may be the best option for those looking for quick payments from any source, and without the need to expose your personal information or bank account numbers. There are also few things more satisfying then getting a notification that payment has been received for a job well done. Perhaps the best part of freelancing, getting paid is an amazing feeling, indeed. Ensure it happens fast by signing up for a free Bonsai trial.