Compliance
Understanding the New Backup Withholding Thresholds for Payment Apps After OBBB
The One, Big, Beautiful Bill changes Form 1099-K and backup withholding rules—learn how thresholds have shifted and what sellers and platforms need to report.
By NomadicTax Research Team • 5 min read • March 3, 2026
## What’s Changing for 1099-K and Backup Withholding
Under the OBBB Act, the threshold for when **third-party settlement organizations** are required to report payments (via Form 1099-K) or apply backup withholding has reverted to pre-American Rescue Plan amounts: only when **both** of the following are true:
- Payments to a payee during the year exceed **$20,000** _and_
- Number of transactions to that payee exceed **200**.
That replaces the lower $600 threshold that was previously scheduled to apply to many sellers under newer law changes. ([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))
**Note**: Even if you're below those thresholds, the income is still taxable; the change modifies reporting and withholding obligations, not the tax due. ([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 This Affects Most
- **Sellers & gig workers** using payment apps, online marketplaces (e.g., Etsy sellers, freelancers, ride share drivers)
- **Platforms and payment processors** who must track both volume and dollar amounts to know when Form 1099-K and backup withholding rules kick in.
- People who used to expect a lower reporting threshold may now avoid some filings or withholding if they fall under both limits.
## Practical Example
- Jane is an online seller. In 2025 she receives $25,000 from a marketplace through 150 transactions. Because transactions did not exceed **200**, she is **not required** to have backup withholding from those payments or to receive a 1099-K from the platform under those proposed regulations. However, she still must report that $25,000 as income.
- Tom receives $30,000 from payment apps and platforms over 250 sales in the year; thus **both thresholds** exceeded. The platforms must issue Form 1099-K and backup withholding may apply.
## What Platforms Must Do Now
- Monitor both transaction count and gross volume per payee.
- Update systems and payee records to ensure accurate reporting when both thresholds are met.
- Provide necessary tax form statements to U.S. individuals or entities in a timely manner.
## Transition and Proposed Nature
- These rules are in **proposed regulation** form (IR-2026-03), not fully final. IRS is soliciting comments. Platforms and taxpayers may rely on proposed rules once published. ([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))
- Be mindful of state-level rules; some states may have their own lower thresholds or different reporting requirements.
## Actionable Steps for Gig Workers & Sellers
1. Keep clear records of how many transactions and total dollar amounts you receive via apps/marketplaces.
2. If nearing both thresholds, plan for Form 1099-K and backup withholding—factor that into cash flow projections.
3. Consult with a tax professional to understand whether electing different reporting (if available) or structuring sales differently helps.
4. Platforms should prepare for these proposed regulations becoming final—ensure compliance systems are up to date.
Staying ahead of regulatory changes around reporting thresholds can help you avoid surprises, ensure compliance, and possibly reduce administrative burden if you fall below the new dual-thresholds.