PayPal is not normally subjected to tax. However you have to furnish your earnings information with your government and the income tax forms. And there is a high possibility that PayPal money can be earned without getting taxes on it.
I think you have to do the taxes if you made over $600 online or something like that. I'm not positive though. My earnings are very small as well so I don't know what else there is...I know that when I start making more money online I will have to look into all of that stuff.