TPSO Reporting Thresholds and Withholding

Summary#

This bill would change federal tax reporting rules for payments processed by third party settlement organizations (TPSOs) such as payment apps or card processors. It would restore a prior "de minimis" reporting exception that requires TPSOs to report payee transactions only when both a dollar and transaction-count threshold are exceeded. The bill also changes how those thresholds apply to backup withholding (withholding tax when a payee has a missing or incorrect taxpayer ID or underreporting).

  • Main change: TPSOs would report third party network payments for a payee only if the total payments in the year exceed $20,000 and the number of transactions exceeds 200.
  • Backup withholding: Payments from TPSOs would be subject to backup withholding rules only when those same thresholds are exceeded, except when the payee already had reportable payments in the prior year.
  • Effective dates: The reporting exception is applied retroactively “as if” it had been included in the earlier law mentioned in the bill. The backup-withholding change applies to calendar years beginning after December 31, 2024.
  • Who wrote it: The bill was introduced in the House and referred to the Ways and Means Committee.

What it means for you#

  • Small sellers, gig workers, and casual sellers: This could mean fewer 1099-type reports coming from payment platforms if you receive amounts and counts below the $20,000-and-200 threshold in a year.
  • Payment companies and processors (TPSOs): They would not have to send reporting forms to payees or the IRS for payees who do not exceed both the dollar and transaction-count thresholds. That reduces the number of reports they must prepare and file.
  • Payees with prior reportable years: If you had reportable payments in the prior year, the bill makes current-year payments reportable for backup withholding purposes even if the current year falls below the thresholds.
  • Taxpayers generally / IRS matching: This would likely reduce the volume of third-party payment data the IRS receives for low-dollar or low-count payees. The bill text does not say how the IRS will use the changed data flow.
  • Tax preparers and payroll/tax departments: Fewer small-account 1099-type forms could reduce paperwork for some clients. However, the exception does not remove other tax-reporting obligations that taxpayers themselves have.

Expenses#

No publicly available information.

  • The bill text does not include a fiscal estimate or score.
  • Possible administrative effects that are not estimated in the bill text: fewer reporting forms to prepare and file for TPSOs (lower compliance costs for those firms); reduced data to the IRS that could affect enforcement or revenue collection (no dollar estimate provided).
  • There is no stated estimate of lost tax revenue, additional IRS costs, or implementation costs in the bill text.

Proponents' View#

  • The bill appears intended to restore the prior rule that limited mandatory TPSO reporting to larger accounts, reducing paperwork for small sellers and people who occasionally receive payments.
  • Supporters may argue this reduces unnecessary reporting and compliance burden on both payees and payment platforms.
  • The backup-withholding provision seeks to limit withholding obligations for small or occasional payees, while preserving withholding when a payee was reportable in the prior year.

Opponents' View#

  • One concern is that restoring the de minimis exception will reduce the amount of third-party payment data the IRS receives. That could make it harder for the IRS to detect underreported income from many small payments.
  • The bill does not include any fiscal estimate, so it is unclear how much federal revenue could be affected or whether the change would increase enforcement costs.
  • The retroactive effective language (saying the change takes effect “as if” included in earlier law) may create uncertainty about which years are affected and how platforms and taxpayers should treat past filings.
  • It is unclear how the rule will interact with other reporting or withholding rules. The bill text does not detail implementation steps or reporting instructions for TPSOs and the IRS.