Compliance
Navigating The IRS’s New TPSO Reporting Rule: What Sellers & Platforms Need To Know
The IRS has proposed updated regulations under the One, Big, Beautiful Bill that change when third-party settlement organizations must perform backup withholding and 1099-K reporting — thresholds which can significantly impact small sellers and digital platforms.
By NomadicTax Research Team • 5-8 min read • February 19, 2026
## What Changed?
Under the proposed IRS regulations issued in **January 2026**, third-party settlement organizations (TPSOs) will now be required to file Form 1099-K and perform **backup withholding** only if **both** of the following conditions are met in a calendar year:
- Gross payments to a payee **exceed $20,000**, and
- The number of reportable 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))
This replaces the previously scheduled lower threshold under the American Rescue Plan Act of 2021, aligning with the One, Big, Beautiful Bill (OBBB) reversal ([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?
- **Small business owners and individuals** who sell goods or services through platforms like online marketplaces and payment apps.
- **Payment platforms** and marketplaces, which must track both dollar amounts and number of transactions to each payee to determine their reporting obligations.
## Practical Examples
| Seller Type | Transactions in Year | Total Gross Payments | 1099-K / Backup Withholding Triggered? |
|-------------|-----------------------|------------------------|------------------------------------------|
| Jane sells crafts in 150 orders totaling $15,000 | Transactions = 150 | $15,000 | **No** (neither threshold reached) |
| Bob provides rideshare service: 250 payments totaling $18,000 | >200 transactions, but <$20,000 | **No** (gross amount threshold not met) |
| Carla sells via a marketplace: 250 transactions accumulating $25,000 | Both thresholds exceeded | **Yes** |
## Actionable Steps for Compliance
1. **Record Exactly**: Platforms need systems that precisely log both transaction counts and gross amounts per payee.
2. **Communicate with Payees**: Sellers should inform their customers if they might cross thresholds and ensure proper taxpayer identification forms are on file (e.g. W-9 or W-8BEN in U.S.).
3. **Tax Planning Strategy**: Sellers close to thresholds might consider splitting business across different entities or marketplaces, though tax law requires reporting across all platforms. Consult a professional.
4. **Review State Rules**: Some states have lower thresholds or different rules for 1099-K or TPSO reporting — local counsel or accountant review is critical.
## Why It Matters
- **Avoid surprises**: Previously many small or part-time sellers were unexpectedly receiving 1099-Ks when exceeding just the dollar threshold. Now both volume and value matter.
- **Cash flow implications**: Backup withholding reduces cash available during the year — only triggered under the new threshold if both conditions met.
- **Administrative burden reduced** for platforms dealing with many small payees, as fewer will need to be reported or withheld for.
## Outlook & Next Steps
- The regulations are **proposed**, not final. Comments were solicited by early February 2026. ([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))
- Platforms and payees should watch for final regulations and guidance from the IRS, as timing and application may shift slightly.
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These changes under OBBB are a significant win for many small sellers who previously faced onerous reporting requirements. But with both thresholds now required, it’s more important than ever to track and plan with intent.