Compliance
Key Compliance Shifts for Small Businesses Under the New 1099-K Rules
With the threshold for third-party payment reporting reverted, many small businesses must handle Form 1099-K and backup withholding differently this year—navigate who, when, and how to stay compliant.
By NomadicTax Research Team • 5-8 min read • March 26, 2026
## What Changed with 1099-K Thresholds
Under America’s tax law now, **Form 1099-K reporting** by third-party settlement organizations (TPSOs) returns to the pre-ARPA standard: only report transactions when the **gross amount to the payee exceeds $20,000 *and*** there are **more than 200** transactions in a year. Earlier, under the American Rescue Plan Act, the threshold dropped dramatically. ([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 and Reporting Obligations
These changes also affect **backup withholding** obligations under Section 3406. Financial institutions and TPSOs need clarity on when this applies under the restored thresholds. It doesn’t change income tax responsibilities—it only reorganizes what's reportable. ([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’s Most Affected
- Gig economy workers, marketplaces, and online sales platforms that frequently pay individuals or sellers.
- Businesses that use Stripe, PayPal, or similar platforms sending payments to contractors.
- Sellers with many small-transactions or many customers who exceed 200 payments even if each is small.
## Avoiding Penalties: What You Should Do Now
1. **Audit your payment volume for 2025**: how many transactions per payee? If you hit 200+ and exceed $20,000, Form 1099-K must be issued.
2. **Collect taxpayer identification numbers (TINs) early** and verify them to avoid backup withholding penalties. Failure to provide accurate TINs triggers backup withholding under Code section 3406. ([irs.gov](https://www.irs.gov/irb/2026-06_IRB?utm_source=openai))
3. **Review platform policies and settings**: some platforms aggregate info; they may control the provider of 1099-K in multi-party scenarios.
4. **Be transparent with contractors and sellers**: inform them their process may trigger 1099-K if thresholds are crossed.
## Sample Scenarios
- **Artisan selling via online marketplace**: 300 small sales totaling $25,000 to one buyer ‒ you’ll need to issue a 1099-K.
- **Landlord accepting rent via third-party payments**: payments from multiple tenants generally don’t combine into one payee, so thresholds may not be met.
- **Freelancer paid via one payments processor**: often all payments go to same payee; track # transactions and total amount carefully.
## Takeaway Tips for Compliance
- **Track by payee**: # transactions and gross payments per payee across platforms.
- **Keep accurate records**: gross receipts, dates, transaction counts.
- **Update systems**: accounting software should reflect the reinstated threshold to avoid over-reporting.
- **Stay informed**: Proposed regulations are pending, comments open, so best to adapt and plan ahead. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-special-depreciation-allowance-for-qualified-production-property-announce-upcoming-proposed-regulations-under-the-one-big-beautiful-bill?utm_source=openai))