What the Changes Are
The One, Big, Beautiful Bill (OBBB) introduced important modifications to backup withholding and 1099-K reporting: those rules now require that both:
- The gross amount of payments received through a third-party settlement organization exceeds $20,000, and
- The number of transactions with that payee exceeds 200 within the calendar year. (irs.gov)
For payments through third-party platforms, only when both thresholds are met must the platform issue a 1099-K and backup withholding becomes a possibility. These changes apply to payments for calendar years beginning after December 31, 2024. (irs.gov)
Who Is Affected?
- Small sellers using online marketplaces with low volume: transactions or revenue may fall below one or both thresholds, exempting them from 1099-K/reporting requirements.
- Platforms and payment apps must track per-payee totals and counts, adjust their reporting systems, and issue required information returns.
- Taxpayers must still report all income—even if they don’t receive a Form 1099-K. Not receiving a 1099-K does not make income nontaxable. (irs.gov)
Key Compliance Steps
- Keep accurate records of all transactions—even small sales or tip payments. Platforms might not issue 1099-K if under thresholds, but the IRS expects you to self-report.
- Monitor end-of-year totals (transaction count and dollar amounts). If nearing 200 transactions or $20,000 in payments, prepare for possible 1099-K and backup withholding.
- If platform or payor incorrectly withholds or reports based on the new rules, you can file Form 945 (Annual Return of Withheld Federal Income Tax) or other applicable forms to reconcile.
- Use the updated IRS Tax Withholding Estimator to adjust withholdings or estimates if your income increases. (irs.gov)
Example Scenario
Alex sells digital art online. In 2025: he has 300 transactions totaling $18,500. Even though he’s above the transaction count threshold, his total dollars fall below $20,000, so under the proposed regs, his platform is not required to issue 1099-K or withhold. But Alex still must report the $18,500 earnings on his tax return.
If Alex had the same number of transactions but made $22,000, then both thresholds would be exceeded, triggering the 1099-K requirement.
Practical Tools and Guidance
- Use accounting software or spreadsheet templates to track monthly totals and counts by payor.
- Platforms should communicate clearly with payees about expected reporting and withholding thresholds.
- Review IRS guidance and proposed regulations in Federal Register references (like for REG-112829-25).
Risks of Noncompliance
- Under-reporting income (even without 1099-K) can lead to penalties and interest.
- Incorrect backup withholding by platforms can create disputes and possible liability.
- Heavy audit risk for those in high-dubious occupations or with high volumes of small payments.
Staying ahead now will help avoid surprise liabilities.