Compliance
Compliance Guide: Backup Withholding & 1099-K After OBBB
Reporting obligations under the One, Big, Beautiful Bill for payment apps and third-party platforms introduce new thresholds—this guide shows what small businesses and individuals must do to stay compliant.
By NomadicTax Research Team • 5-8 min read • April 6, 2026
## 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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-reflecting-changes-from-the-one-big-beautiful-bill-to-the-threshold-for-backup-withholding-on-certain-payments-made-through-third-parties?utm_source=openai))
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](https://www.irs.gov/irb/2026-05_IRB?utm_source=openai))
## 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](https://www.irs.gov/newsroom/the-one-big-beautiful-bill-what-gig-economy-workers-should-know?utm_source=openai))
## 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](https://www.irs.gov/newsroom/tax-withholding-estimator-now-reflects-changes-under-the-one-big-beautiful-bill?utm_source=openai))
## 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.