Transferring under $600 a year without an SSN is entirely legal. That's money considered too small to be worth taxing.
One place an American can usually quite easily check this is at your local gambling area. They are locked by the same rules. If you win big at the horse races, you don't get to take your money until you fill out tax paperwork.
This is no different, except that OP is international, and didn't know our rules as a result.
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.
One, PayPal does make their rules very clear. It isn't PayPal's fault that its users don't bother to read the rules.
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.
Paypal has no incentive here. They can just float the cash and earn a small % on it. Do it to enough people and you understand how they make a lot of money.
If transferring money without SSN is illegal; I wonder how collecting it without one would be legal.