Compliance
Compliance Checklist: TPSOs, Form 1099-K & Backup Withholding under New Regulation
With thresholds reverting under the OBBB Act, TPSOs and payees both need to know when reporting and backup withholding apply. Follow this checklist to stay compliant and avoid penalties.
By NomadicTax Research Team • 5-8 min read • April 23, 2026
## Understanding TPSOs & Reporting Thresholds
**TPSO** stands for **Third-Party Settlement Organization**, like payment processors, marketplaces, or apps that settle payments to individuals. Under the OBBB changes:
- **Form 1099-K** reporting is only required if a payee receives over **$20,000 in gross payments** *and* there are **more than 200 transactions** in a year. ([irs.gov](https://www.irs.gov/newsroom/form-1099-k-faqs-third-party-filers-of-form-1099-k?utm_source=openai))
- If either threshold is not met, the TPSO is not required to report or issue backup withholding under §6050W/§3406 regulations. ([irs.gov](https://www.irs.gov/irb/2026-05_IRB/index.html?utm_source=openai))
## Backup Withholding Rules Simplified
When backup withholding may apply:
- The new proposed regulations clarify: backup withholding applies only **after** both thresholds are crossed—**dollar amount** and **transaction count**. ([irs.gov](https://www.irs.gov/irb/2026-05_IRB/index.html?utm_source=openai))
- Before thresholds are met, TPSOs are not required to backup withhold, but payees should still report income on their tax return.
## Actionable Steps for TPSOs & Payees
| For TPSOs (payment platforms) | For Payees (individuals, small businesses) |
|-----------------------------|---------------------------------------------|
| Track each payee’s cumulative number of transactions and gross payments. Once both exceed thresholds, issue Form 1099-K and begin backup withholding procedures under proposed regulations. | Keep detailed transaction histories. If you expect to exceed thresholds, ensure your TIN/EIN is correct and provide it proactively to avoid backup withholding errors. |
| Monitor proposed regulation publication, comment periods. ETS deadlines matter—proposed regulations are relevant for payments made in calendar years after December 31, 2024. ([irs.gov](https://www.irs.gov/irb/2026-05_IRB/index.html?utm_source=openai)) | Be aware that even if you don’t trigger thresholds, the income is taxable. Use deductions, FEIE, HSA, etc., to manage tax when filing annually. |
## Common Pitfalls & Penalties to Avoid
- **Missing the combination requirement**: Remember both the dollar and transaction thresholds must be met. Reporting only one is insufficient. Platforms misapplying rules may issue incorrect Forms 1099-K or backup withhold incorrectly.
- **Incorrect or missing TINs**: If a payee fails to provide a valid TIN, and thresholds are exceeded, TPSOs may begin backup withholding. ﹘ Make sure forms and platform profiles are up to date. ([irs.gov](https://www.irs.gov/irb/2026-05_IRB/index.html?utm_source=openai))
- **Late or incomplete group exemption submissions**: For nonprofits using group letters, failure to submit Supplemental Group Ruling Information (SGRI) on time or correctly may lead to loss of group exemption. Rev. Proc. 2026-8 sets strict timings and requirements. ([irs.gov](https://www.irs.gov/irb/2026-04_IRB?utm_source=openai))
## Timeline & Effective Dates
- **Proposed backup withholding regulations** apply for payments made in **calendar years beginning after December 31, 2024**. ([irs.gov](https://www.irs.gov/irb/2026-05_IRB/index.html?utm_source=openai))
- **Rev. Proc. 2026-8**, the new group exemption rules, are already issued. Central orgs must meet certain transition period deadlines by **January 22, 2027**. ([irs.gov](https://www.irs.gov/irb/2026-04_IRB?utm_source=openai))
## Final Thoughts
To stay compliant:
- Zero in on precise thresholds and ensure both are triggered before reporting and backup withholding begin.
- Regularly reconcile payer/payee records and verify correct TIN/EIN information.
- For nonprofits, ensure internal governance aligns with group exemption requirements—authorize subordinate removals, establish reporting periods, and meet deadlines.
Category: Compliance
Author: NomadicTax Research Team
Read Time: 5 min