Compliance
What the Final Backup Withholding Rules Mean for Sellers Using Third-Party Payment Networks
New rules under the One, Big, Beautiful Bill (OBBBA) shift when backup withholding kicks in for payments through third-party networks—here’s what digital platforms and gig-economy workers need to know.
By NomadicTax Research Team • 5-8 min read • September 5, 2026
## Background: Reporting and Withholding Changes
Under the **One, Big, Beautiful Bill Act** (OBBBA), the reporting threshold for payments processed through third party settlement organizations (TPSOs) reverted to **$20,000 and over 200 transactions per calendar year** after previously being lowered to $600 under ARPA. ([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)) Final regulations issued in **Income Tax Regulations (26 CFR part 31)** now align backup withholding obligations with those reporting thresholds. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-36.pdf?utm_source=openai))
## What Triggers Backup Withholding Now
Backup withholding under Section 3406 for TPSOs will apply only when:
- A tactile payee **exceeds $20,000 in gross payments**, **and**
- The number of transactions with that payee exceeds **200** in a calendar year.
If either threshold isn’t met, backup withholding doesn’t apply simply because a transaction exists. ([irs.gov](https://www.irs.gov/irb/2026-36_irb?utm_source=openai))
Importantly, the final rules also clarify that **income remains taxable** regardless of whether it’s reported via 1099-K or covered by backup withholding. Failing to receive a Form 1099-K does not change tax obligations. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-36.pdf?utm_source=openai))
## Effective Date and Compliance Obligations
- These final regulations are effective for **payments made in calendar years beginning after December 31, 2024**. That means any payments in **2025 and beyond** are subject to the new backup withholding and reporting rules. ([irs.gov](https://www.irs.gov/pub/irs-irbs/irb26-36.pdf?utm_source=openai))
- TPSOs must ensure systems are in place to monitor thresholds, properly collect taxpayer identification numbers, and perform backup withholding as needed.
## Illustrative Examples
| Seller | Transactions in 2025 | Gross Amount | Backup Withholding Required? |
|---|---|---|---|
| A rideshare driver with 250 rides receiving $15,000 total | **No** | **No** | Even though transaction count >200, gross < $20,000—no backup withholding. |
| An online marketplace vendor with 150 sales totalling $25,000 | **No** | **No** | Amount >$20,000 but transactions <200—no withholding obligation. |
| A gig-platform worker with 300 transactions totalling $25,000 | **Yes** | **Yes** | Both thresholds met—backup withholding applies. |
## Action Items for Platforms and Sellers
- Platforms should update their recordkeeping and reporting systems to correctly flag payees who meet both thresholds.
- Sellers should monitor their transaction count *and* revenue; exceeding **either** without the other doesn’t trigger withholding.
- Make sure your **Taxpayer Identification Number (TIN)** is on file; missing or incorrect TINs often lead to withholding.
- Remember: Even if withholding or reporting doesn’t apply, income is still taxable—and you’re responsible for reporting all earnings on your income tax return.
By aligning backup withholding with reporting requirements, these rules simplify obligations for many smaller sellers while sharpening clarity for TPSOs. Spread the word—so everyone knows where they stand.