Compliance
Avoiding Surprises: Compliance Under the Backup Withholding Threshold Changes
The backup withholding rules under OBBB are shifting to higher thresholds—what this means for sellers, platforms, and individual reporting.
By NomadicTax Research Team • 5-8 min read • February 27, 2026
## What’s Changing with Backup Withholding
Under the One, Big, Beautiful Bill, the thresholds triggering backup withholding of payments made through third-party settlement organizations have been adjusted. Proposed regulations (Treasury/IRS IR-2026-03) would replace the old flat $600 trigger with a **dual threshold requirement**: both **over $20,000 in payments** and **more than 200 transactions** in a calendar year.([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
This affects platforms like payment apps, gig economy platforms, online marketplaces, peer-to-peer services, etc.([irs.gov](https://www.irs.gov/newsroom/prepare-to-file-in-2026-get-ready-for-tax-season-with-key-updates-essential-tips?utm_source=openai))
## Who’s Affected and How
- **Third-party settlement organizations (TPSOs)** are required to track both the **number of transactions** and **total amount** per payee. Withholding would only be required when *both* thresholds are exceeded.([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
- **Sellers or individual service providers** receiving payments via such platforms: if you don’t hit BOTH thresholds, no backup withholding applies under the new rule (pending final regulations).
- **Platforms** need compliance systems to monitor thresholds and flag payees who cross them.
## What to Do Now to Stay Compliant
- Track transaction counts and payment totals for each platform—invoices, payments, fees—monthly or quarterly.
- For platforms: configure or upgrade systems to consolidate a payee’s total number and dollar value of transactions.
- Watch for IRS publication of final regulations. Until then, use proposed regs as guidance and avoid retroactive surprises.
## Example Scenarios
- **Case A**: A food delivery driver receives 150 payments total amounting to $18,000 in a year. Under the new rule (once effective), no backup withholding, because though amount is close, transaction count is below threshold.
- **Case B**: A crafts seller gets 250 payments, totaling $15,000. Even though they exceed transaction count, they’re below $20,000 in amount—so no withholding.
- **Case C**: Same flower business, 300 transactions, $25,000 total—they meet both, so backup withholding may apply.
## Pitfalls & Strategy
-**Penalties** may apply if platforms fail to withhold when required.
- **Form 1099-K threshold** is related but different—everyone who surpasses both amount and transaction thresholds will also receive a 1099-K.
- Monitor income sources—if similar payment flows occur across different platforms, combine counts and amounts as per the regs.
## Take-away Tips
- Keep detailed records now—even before final regulations—to understand where thresholds might hit.
- Seek advice if your operations are near both thresholds, especially if you expect higher volume in upcoming years.