The 1099-K backup withholding threshold is now $20,000 and 200 transactions, and crossing it once puts a seller under withholding on every payment the following year
The threshold went up. The trap did not move with it.
The Internal Revenue Service filed final regulations on Friday morning setting backup withholding on third party network transactions to the same de minimis test that governs Form 1099-K reporting. That test is the one restored by section 70432 of last year's tax act: more than 200 transactions and more than $20,000 in gross payments to a participating payee in a calendar year. Below both, the platform does not report and does not withhold. The regulations were proposed in January, drew eight comments, produced no request for a hearing, and are adopted without a single change.
The paragraph that does the work
Paragraph (b)(3) of the amended section is four lines long and it is the part practitioners will be asked about.
If any payment a platform made to a payee in the preceding calendar year was a reportable payment, then every payment to that payee in the current year is subject to backup withholding. The threshold test does not apply in that year at all.
The final text walks it out over four examples and five calendar years. A payee who fails to supply a taxpayer identification number takes 201 payments totalling $20,000.01 in 2026, and the platform withholds on the whole of the 201st transaction, the one that crosses the line. In 2027 that payee takes 199 payments totalling $18,000, which is under both limits, and the platform withholds on every one of them. In 2028 the payee takes four payments totalling $2,000, and the platform withholds on all four. Only in 2030, after a clear year with no payments at all in 2029, does the threshold test govern again.
What the preamble declines to do
One commenter asked that the changes apply prospectively. The Treasury Department and the IRS refused, and the reason given is statutory: Congress set the change to apply to calendar years beginning after 31 December 2024, and the regulations mirror that date rather than the date they were written.
Another commenter asked for a threshold of $200,000 and 10,000 transactions. The preamble answers that the agencies lack authority to change a number Congress wrote.
A third asked for language confirming that the absence of a Form 1099-K does not make income untaxable. That request was treated as outside the scope of the rulemaking, and then answered anyway. Taxability of payments and reportability of income on a return, the preamble says, are not determined by whether the IRS or the taxpayer receives a Form 1099-K, or by whether backup withholding was required.
The rules are effective on publication, which the filing sets for 10 August.
