Compliance
Leveraging the $20,000/$200 Backup Withholding Threshold Under OBBBBA
The One, Big, Beautiful Bill significantly raised the trigger for backup withholding by payment platforms—this article breaks down what that means for sellers, gig workers, and businesses.
By NomadicTax Research Team • 5-8 min read • April 10, 2026
## What Changed?
The One, Big, Beautiful Bill (OBBBA) brought several amendments to U.S. payment reporting and withholding rules, particularly for Third Party Settlement Organizations (TPSOs) like payment apps and online platforms. One key change is the backup withholding threshold. Under the new law, TPSOs are only required to backup withhold when **both** these conditions are met in a calendar year:
- Total reportable payments to a seller exceed **$20,000**; **and**
- The number of transactions for that seller exceeds **200**. ([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))
Previously, the threshold had been much lower; for example, the American Rescue Plan Act required withholding and reporting at just $600, with *no* minimum number of transactions. OBBBBA now brings that back up to this $20,000 & 200 transactions test. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Who This Affects
Here’s a breakdown:
| Stakeholder | Key Impact |
|-------------|-------------|
| Gig workers, small sellers on platforms | Less chance of sudden backup withholding until they cross both thresholds. It reduces compliance burden for small-volume sellers. |
| Payment platforms / TPSOs | Must track both the dollar and transaction count thresholds, and apply withholding once both are exceeded. Systems may need updating. |
| Tax preparers/bookkeepers | Must inform clients about the updated thresholds; ensure withholding obligations aren’t triggered unexpectedly. |
## Actionable Advice
- **Track Transactions and Payments Continuously**: Keep a running count of transactions and total dollar amounts solo and per platform to know when thresholds are crossed.
- **Update Reporting Systems**: If you’re a business or platform, ensure backup withholding modules kick in only when both thresholds are met, and for the entire triggering transaction and subsequent transactions. ([irs.gov](https://www.irs.gov/irb/2026-05_IRB/index.html?utm_source=openai))
- **Review Past Reporting Years**: The threshold applies for payments made in years after December 31, 2024. Sellers should check if previous years’ payments were 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))
## Practical Example
Jennifer sells handmade jewelry on two marketplace platforms. In 2026 so far, she had 150 sales totaling $18,000 on Platform A, and only 10 on Platform B. Under the new rule:
- No backup withholding is required yet—because both thresholds aren’t met on either platform.
- If by year-end she makes 60 more sales (pushing the transaction count past 200) on Platform A, while total payments also exceed $20,000, then Platform A must back‐up withhold on the entire transaction that caused her to cross the threshold, and all subsequent payments. |
## Risks to Watch For
- Platforms misapplying withholding too early.
- Sellers not realizing a single platform triggered withholding.
- Plateaus near thresholds causing spikes in withholding unexpectedly.
## Bottom Line
The OBBBBA’s raised threshold eases regulatory burdens for many small sellers and part-time gig workers. But once both the $20,000 and 200-transaction thresholds are met, backup withholding kicks in—not just for that transaction but everyone after it. Keeping solid records and being mindful of platform reports is key to managing this change.