Here in New York, how do I go about paying taxes on PayPal? For example, suppose I start out a month with a PayPal balance of $0. The first week of the month, I earn $500 selling advertising space on DaniWeb which goes into my PayPal balance. I never withdraw anything. The third week of the month, I spend $150 purchasing ad space on another website, which comes directly from my PayPal balance. At the end of the month, I direct deposit the $350 I have into my bank account. According to the U.S. government, did I just make $350? Or did I make $500? I only ever saw $350 of it. Does a PayPal balance count as real money or does it not count as real money until it is in the form of a check or ends up in your bank? I have heard people consider a PayPal balance simply a form of online credit that is associated strictly with the paypal.com service. In other words, it isn't real money until you withdraw from PayPal.