Compliance
Mastering Backup Withholding Thresholds Under the One, Big, Beautiful Bill
New proposed regulations raise backup withholding thresholds: learn how this change affects sellers, apps like PayPal, and taxpayers receiving frequent payments.
By NomadicTax Research Team • 5-8 min read • March 7, 2026
## What Changed with Backup Withholding
Under the **One, Big, Beautiful Bill** (OBBB), enacted July 2025, the threshold at which third-party settlement organizations (e.g. payment apps, marketplaces) must perform *backup withholding* has been raised significantly. Previously, gross payments exceeding **$600** triggered both reporting and backup withholding. The new proposed rule requires that two thresholds be exceeded:
- Total payments to a payee in a calendar year exceed **$20,000**, **and**
- The total number of transactions 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))
If neither or only one of those is met, backup withholding generally does **not** apply under these rules. This aligns with the reinstated Form 1099-K reporting thresholds also established by OBBB. ([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 Needs to Pay Attention?
- **Small sellers on platforms** (e.g. Etsy, eBay, freelancing services) who occasionally receive payments. They may have been alarmed by the old $600 rule but now may fall under the milder thresholds.
- **Payment platforms** and third-party settlement organizations. They’ll need to track two metrics per payee: total gross payments and number of transactions. ([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))
- **Freelancers and gig economy workers**: if you expect many small transactions, you may avoid backup withholding if under both thresholds.
## What You Should Do Now
- If you’re a seller or service provider: track both the dollar amount and number of payment transactions to determine exposure to backup withholding.
- If you’re a payment platform: ensure your software systems can flag when *both* thresholds are exceeded, not just one.
- Maintain detailed records: even payments not subject to backup withholding still may need reporting via 1099-K if both thresholds are met. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai))
## Practical Example
> Jane is an artist who sells prints online through a marketplace. In 2025 she sold 150 prints for a total of \$18,000. Under the old \$600 threshold, many of those payments might have triggered backup withholding if processed differently. Under the new proposed regulation, since she had **150 transactions** (less than 200) and **\$18,000** (less than \$20,000), she will **not** be subject to backup withholding—even though she exceeds \$600.
## Pending Nature and Implementation Timeline
These are **proposed regulations**, issued in early January 2026, and are not yet final. Comments are being accepted via regulations.gov. Final rules may adjust details or applicability. ([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))
## Key Tips
- Monitor both your payments total *and* transaction count—meeting both triggers the rule.
- Review payment platform statements early; sometimes payments are aggregated.
- Consult with a tax professional if you frequently use multiple platforms—aggregated reporting could trigger thresholds in unexpected ways.
**Bottom line**: The raised thresholds mean fewer taxpayers face backup withholding, but data tracking and reporting remain crucial—whether you’re paying or receiving payments.