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)
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).
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
- Record Exactly: Platforms need systems that precisely log both transaction counts and gross amounts per payee.
- 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.).
- 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.
- 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)
- Platforms and payees should watch for final regulations and guidance from the IRS, as timing and application may shift slightly.
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.