Digital Nomad
How IRS Is Changing 1099-K and Backup Withholding for Side Hustlers and Sellers
Thresholds for Form 1099-K reporting and backup withholding have shifted—this changes what gig workers, marketplace sellers, and side hustlers need to watch for.
By NomadicTax Research Team • 5-8 min read • February 21, 2026
## What Are the New IRS Rules under OBBB?
The One, Big, Beautiful Bill (OBBB) reversed earlier reporting thresholds that had been lowered in 2021. The new rules restore the previous standard that **Form 1099-K** is required only when total payments exceed **$20,000** *and* there are more than **200 transactions** in a 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)) Backup withholding rules under §3406 are also being updated to match that dual-threshold standard. ([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))
## Who Is Affected
- Sellers on online marketplaces (Etsy, eBay, Amazon) with lower volume of sales—if they don’t hit both thresholds, they won’t receive a 1099-K or have backup withholding triggered.
- Gig economy workers with many small payments now have relief if amounts stay under **$20,000 total AND under 200 transactions**.
- Third-party settlement platforms must update recordkeeping and manage thresholds carefully.
## Compliance Tips & What To Do Now
- **Monitor payment volumes closely**—track both number of transactions and dollar amount with each marketplace or app.
- **Ensure IRS-friendly reporting**—make sure apps and platforms issue correct tax forms, especially when thresholds are exceeded.
- **Keep tax ID information up to date**—payees should furnish accurate SSN or EIN to avoid backup withholding.
- **Review past years**—if you thought you needed to report under old lower thresholds, see if prior reporting was necessary; consult your accountant.
## Practical Example
Take **Sara**, an artisan who sells handmade items on two different platforms. In 2025:
- On Platform A: she sells 250 items, amounting to \$15,000 in total.
- On Platform B: sells 150 items, amounting to \$10,000.
Even though she sold 400 total items, **none of those platforms exceeded **both** tests with one organization**—yet Platform A exceeded transaction count without amount. So, **no 1099-K** and **no backup withholding** on either platform under current proposed regulations.
If in 2026 she earned \$22,000 through 210 small-value transactions on the same marketplace, then both thresholds hit in that single payor-payer relationship, triggering reporting and withholding.
## Things to Watch Out For
- **Proposed Regulations—Not Yet Final**: As of January 8, 2026, the IRS has issued *proposed regulations*—open for comment. Finalized rules may tweak definitions or implementation effective dates. ([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))
- **Partner-level vs Payor level**: Rules generally apply per payee and per payor (the entity sending payments); multiple platforms don’t combine thresholds across entities.
- **Backup withholding rate matters**: If withholding applies, payers will need to use the fourth lowest tax rate (for individuals/single filers), so plan cash flow accordingly.
## Key Takeaways
- The “Big $600 threshold” has been rolled back: now **“$20,000 AND 200 transactions”** applies again under OBBB.
- Sellers and gig-workers with moderate volume will now generally avoid reporting and withholding if they stay under both thresholds.
- Always keep **transaction count** and **dollar sum** records.
- Stay informed—when final regs are published, certain items may change.
**Bottom line**: This change gives many part-time sellers and gig workers breathing room—if you manage volume or sales amount carefully. Recordkeeping wins.