What Changed for Third-Party Payments
Under the OBBBA, the threshold for reporting payments made through third-party settlement organizations (e.g. payment apps, marketplaces) reverted to a higher threshold: both more than $20,000 in payments and more than 200 transactions in a calendar year. (irs.gov)
Why It Matters for Backup Withholding
Backup withholding is a mechanism where payers must withhold federal tax when certain reporting thresholds are met. Under the proposed regulations:
- You’ll meet the threshold only if both volume ($20,000+) and count (200+ payments) are satisfied. (irs.gov)
- If you fall below both, withholding generally does not apply. This can lower your compliance costs. (irs.gov)
Practical Action Steps
- If you're a seller or payee receiving payments, review your total number of transactions and dollar volume for the year. If you expect to exceed both, prepare to provide required tax information (TIN/SSN).
- If you're a payment platform or third-party settlement organization, begin tracking both metrics per payee: transaction count & gross payment. Update reporting processes. This is already in proposed regs; final regs may impose stricter compliance. (irs.gov)
- Stay alert: the regulations are proposed and comments are open. Final rules may change thresholds, exceptions, or effective dates. (irs.gov)