Then PayPal should make this very, very clear. In fact, I'd go further: they should mandate that you provide an SSN before you can collect money. It's unethical to do otherwise: anyone who uses PayPal to collect money will want to withdraw it.
Two, these rules do not come from PayPal; they come from the US Federal Government.
Three, the thing you're saying they should make clear is something someone else guessed about, and it's not correct. As long as the number is under $600 a year, there's no paperwork required.
I don't understand why we're all panicking so hard about a set of guesses that people have made. If you just think the situation over a little bit, it's pretty obvious that what's really going on is OP hasn't finished his free tax paperwork, and that PayPal can't hand out money until the tax situation is made legal.
And when you look at it that way, PayPal is actually doing exactly the right thing.
I'm very interested in what tax laws you believe he's broken though.