The IRS has finally addressed the reporting threshold confusion that has plagued tax practitioners since 2021.
The Treasury and the IRS issued
The history
When Congress enacted Code Section 6050W in 2008, it established a sensible threshold. Third-party settlement organizations had to report payments only if those payments exceeded $20,000 and involved more than 200 transactions in a calendar year. This captured genuine business activity while leaving casual sellers alone.
Then came the American Rescue Plan Act in 2021. Congress slashed the threshold to $600 with no transaction minimum. The intent was to close the tax gap. The reality was a potential compliance nightmare.
Anyone who sold a few items online or split rent with roommates through a payment app faced potential reporting. The IRS recognized the problem. It issued three consecutive delay notices, pushing implementation
The One Big Beautiful Bill Act, enacted on July 4, 2025, ended the uncertainty. It retroactively restored the original thresholds, effective for calendar years beginning after Dec. 31, 2024. It also added Section 3406(b)(8), which ties backup withholding to the same thresholds.
Why backup withholding matters
Backup withholding under Section 3406 is the IRS's enforcement mechanism when a payee fails to provide a correct taxpayer identification number. The rate is 24%. It comes directly off the top of payments.
Before the OBBBA, there was an ambiguity. The reporting threshold and the backup withholding threshold operated on parallel but not identical tracks. A third party settlement organization might not have to file a 1099-K for a payee. But the backup withholding rules did not explicitly incorporate those same limits.
The proposed regulations eliminate this gap.
Under the new framework, a payment is treated as reportable for backup withholding purposes only if aggregate payments exceed $20,000 and transactions exceed 200 in the calendar year. If your client does not hit both thresholds, the TPSO is not required to backup withhold. This is true even if the client never provided a valid Taxpayer Identification Number.
What this means for your practice
Casual sellers get relief. The grandmother who sold $800 worth of vintage dishes on eBay will not receive a 1099-K. The platform will not withhold 24% of her payments if she forgot to update her W-9.
Gig workers still face scrutiny. If your client drives for a rideshare company or delivers food through an app, they will almost certainly exceed both thresholds. Make sure their TINs are current with every platform they use.
Platform compliance gets simpler. TPSOs have operated in uncertainty for years. These regulations give them a clear standard. They can build their systems around the $20,000/200-transaction threshold without worrying about mid-year changes.
The TIN matching problem persists. If the IRS issues a B notice indicating a TIN mismatch, the TPSO must still withhold. Advise clients to verify their information with every platform annually.
Retroactive application creates transition issues. Some 2024 and 2025 transactions may need to be re-evaluated. If a TPSO withheld based on the anticipated $600 threshold, there may be refund claims to process. Watch for IRS guidance.
For four years, we operated in limbo. The IRS kept delaying implementation because it knew the $600 threshold was unworkable. Congress eventually agreed and reversed course.
But in the meantime, platforms built systems. Taxpayers received erroneous forms. Practitioners spent countless hours explaining a rule that never took effect.
This is not how tax policy should work. When we create compliance obligations, they need to be administrable from day one. The original threshold worked because it was calibrated to capture genuine business activity. The $600 threshold failed because it treated every casual transaction as a taxable event.
The proposed regulations are open for public comment. I expect they will be finalized without significant changes. The statutory language is clear.
If you have clients in the gig economy or platform-based businesses, now is the time to review their withholding status and TIN accuracy.
After four years of delays and reversals, the 1099-K threshold is back where it started.
