IRS Targets Backup Withholding on Your Third-Party Online Purchases
Published Date: 1/9/2026
Proposed Rule
Summary
Starting soon, companies that handle payments for online sales and services will have new rules about backup withholding—basically, a way to hold back some money for taxes if needed. These changes affect third party payment networks and aim to keep tax collection smooth and fair. If you’re involved in these transactions, watch out for the March 10, 2026 deadline to share your thoughts!
Analyzed Economic Effects
3 provisions identified: 1 benefits, 2 costs, 0 mixed.
Whole Transaction Subject to Withholding Once Thresholds Hit
For third party network transactions, once a participating payee during a calendar year exceeds the 200-transaction threshold or the $20,000 aggregate threshold, the entire amount of the transaction that causes the threshold to be exceeded (and any subsequent transactions that year) is subject to backup withholding. The rule is proposed to apply to calendar years beginning after December 31, 2024.
1099‑K Reporting Threshold Reverted
The rule reverts the Form 1099-K reporting threshold for third party settlement organizations to $20,000 in gross payments and 200 transactions in a calendar year (the pre-2021 standard). This change applies to payments in calendar years beginning after December 31, 2024.
Prior‑Year Reportable Payments Trigger Current‑Year Withholding
If a payor made one or more reportable third party network payments to a participating payee during the preceding calendar year, the exception for de minimis payments does not apply and the payor must backup withhold on payments to that payee during the current calendar year even if current-year totals do not exceed $20,000 and 200 transactions. This carryover rule is effective for calendar years beginning after December 31, 2024.
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Key Dates
Department and Agencies
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