Written by Emma Caswell
The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, includes several provisions to tax reporting requirements for businesses, payment platforms, and individual taxpayers from the 2017 Tax Cuts and Jobs Act (TCJA). This article focuses on Section 70432, which affects Form 1099-K reporting for third-party payment networks such as Venmo, PayPal, and online marketplaces. The purpose of this article is to provide an overview of Section 70432 and help taxpayers understand its impact on their tax reporting obligations, backup withholding requirements, and compliance responsibilities.
Section 70432 restores the Form 1099-K reporting threshold that existed under the Housing Assistance Tax Act of 2008. Historically, third-party settlement organizations (TPSOs), such as payment applications, online marketplaces, and digital payment processors, were generally required to issue Form 1099-K only when a payee received more than $20,000 in aggregate payments and engaged in more than 200 transactions during the year. The American Rescue Plan Act of 2021 (ARPA) expanded reporting requirements by lowering the threshold to $600, regardless of the number of transactions. However, Section 70432 of the OBBBA reinstated the prior reporting threshold of more than $20,000 in payments and more than 200 transactions annually. As a result, TPSOs are not required to issue Form 1099-K unless both the payment and transaction thresholds are exceeded.
The revised reporting requirements impact a broad group of taxpayers, including:
- TPSOs that process payments through online platforms and payment applications
- Businesses and individuals who receive payments through those platforms
- Independent contractors and self-employed service providers
- Participants in the gig economy, where individuals earn income through on-demand work, services, or the sale of goods through digital platforms. Common examples include food delivery services, property rentals, and rideshare driving.
Although many taxpayers will now receive fewer Forms 1099-K under the reinstated threshold, it is important to remember that all taxable income must still be reported, regardless of whether a Form 1099-K is issued.
Section 70432 also includes changes related to backup withholding on third-party network transactions. Backup withholding is a federal income tax that must be withheld and remitted to the IRS when certain taxpayer information reporting requirements are not satisfied. The current backup withholding rate is 24%. A taxpayer may be subject to backup withholding if the taxpayer fails to provide a valid Taxpayer Identification Number (TIN) to the payer or the IRS notifies the payer that the TIN provided is incorrect. Consistent with the restored Form 1099-K threshold, TPSOs generally are not required to apply backup withholding unless a payee exceeds both the $20,000 payment threshold and the 200-transaction threshold. The proposed regulations further clarify that once both thresholds have been met, backup withholding applies to the entire amount of the transaction that causes either the transaction count or dollar threshold to be exceeded, whichever occurs later, as well as all subsequent transactions during that year.
It is important to note that backup withholding is not an additional tax. Any amount withheld under the backup withholding rules may be claimed as a credit on the taxpayer’s income tax return for the year the income is reported. In the case of partnerships and S corporations, any backup withholding credits are passed through to the partners and shareholders in which they may claim their allocable share of the withholding on their individual income tax returns. The withholding amount is not refundable to the partnership or S corporation itself.
The recovery of the higher reporting threshold is expected to reduce administrative burdens for many individuals, small businesses, and gig workers who use third-party payment platforms. Fewer taxpayers will receive Form 1099-K due to occasional business activity or limited online sales. However, payment platforms and TPSOs must continue to maintain compliance responsibilities of:
- Monitoring cumulative payment and transaction amounts for each payee
- Collecting and validating taxpayer identification information
- Tracking reporting thresholds throughout the year
- Administering backup withholding requirements when applicable
Likewise, businesses and individuals should continue maintaining detailed records of all income received through payment platforms as the absence of a Form 1099-K does not eliminate the obligation to report taxable income on a federal tax return.
If you have any questions regarding how Section 70432, Form 1099-K reporting requirements, or backup withholding rules may affect you or your business, please contact us for guidance. We can help you evaluate how these changes may affect your business and ensure you remain complaint with evolving tax reporting requirements.
References:
(Source: H.R.1-OBBBA) https://www.congress.gov/bill/119th-congress/house-bill/1
(Source: IRS Backup Withholding) https://www.irs.gov/taxtopics/tc307
(Source: IRS Third Party Payments) 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
(Source: Senate) https://www.finance.senate.gov/imo/media/doc/finance_committee_section-by-section_title_vii5.pdf