Overview of the Change
Under Section 70432 of the One, Big, Beautiful Bill (OBBB), the threshold for backup withholding by third-party settlement organizations (TPSOs)—such as PayPal, Venmo, or major freelance platforms—has reverted to its pre-2021 levels. That means TPSOs must only report and potentially backup withhold when both of the following are met:
- Transactions to a payee exceed $20,000 in gross during a calendar year, and
- The number of transactions to that payee exceeds 200 in the year. (irs.gov)
This marks a return from the lower 2021 thresholds under the American Rescue Plan, which required reporting at just $600 with no transaction count requirement. (irs.gov)
Why It Matters for Solos & Creatives
Many solopreneurs, artists, and gig workers receive dozens of small payments for different pieces of work or customers. Under the old $600 rule, even sporadic payments could lead to having to jump through extensive reporting and withholding requirements. The change allows for more breathing room:
- If you have high-volume, small payments but fewer than 200 transactions, or total payments under $20,000, you’ll be below the withholding requirement.
- If you’re more established with larger revenue or many individual payments, you may still need to monitor carefully.
How to Know If You’re Affected
| Scenario | Total Payments in Year | Number of Transactions | Is Reporting/Withholding Triggered? |
|---|---|---|---|
| A freelance illustrator receives 180 payments totaling $15,000 | $15,000 | 180 | No – neither threshold met. |
| A vintage jewelry maker receives 250 orders, each $150 = $37,500 | $37,500 | 250 | Yes – both thresholds exceeded. |
| An online coach gets 220 small subscriptions $60 each = $13,200 | $13,200 | 220 | No – payment amount too low despite many transactions. |
What You Should Do Now
- Review your payment history with all platforms and TPSOs. Track both number of payments and total dollar amounts.
- Collect accurate tax info up front, especially taxpayer identification numbers (TINs), to avoid penalties if withholding or reporting becomes required.
- Stay updated with IRS proposed regulations—they may finalize guidance that clarifies best practices or transitional rules.
- Tidy up record-keeping: categorize income sources, save platform statements, prepare for possible backup withholding or Form 1099-K reporting.
Practical Example
Sarah is a graphic designer selling prints via an online marketplace. In 2025, she did 150 sales for $140 each—totaling $21,000. She meets the dollar threshold but not the number of transactions threshold. No reporting or withholding required yet. If she had done 220 sales at $100 each for $22,000, yes, both thresholds exceeded—and TPSO must report and possibly withhold.
Key Takeaways
- Less reporting burden for many small-volume creatives under the new thresholds.
- But still risky if you have many sales or large revenues—monitor both metrics.
- Don’t assume compliance: watch for final regulations and make sure platforms report correctly.
With these changes, independents can operate with a bit more simplicity—if they stay informed and document everything. You may not need to worry about forms like 1099-K until you cross both lines.