IRS changes implemented about a year ago require PayPal and eBay to send you (and the IRS) a tax form if your sales/receipts reach a certain level. That notice would require your name, address, and social security number.

PayPal & eBay could have waited until you approach that minimum dollar/transaction level before they asked for your social security number, but they decided to start gathering that information before they really "need" it. Basically, they are asking for that info when you reach either 200 transactions in a year, or $20,000 in sales volume in a year. The law requires the tax form only when you reach both thresholds, not just one of those targets.

If they fail to obtain that information from you when it is required, and consequently they are unable to send that tax notice, they have to pay a fine to the IRS. That is why there is a veiled reference to stopping certain transactions - if they are unable to send the notice, they will prevent you from having enough dollars/transactions to trigger that requirement so they do not have to pay a fine.

Here is a link to PayPal's explanation of the changes. https://cms.paypal.com/us/cgi-bin/marketingweb?cmd=_render-content&content_ID=marketing_us/IRS6050W

This is a legitimate request, but of course you will want to log on to your PayPal account without using an e-mail link to make sure you are actually responding to a request from PayPal itself (rather than a fraudster).