Background
Section 6050W requires payment settlement entities, including TPSOs, such as payment platforms and online marketplaces, to report payments for goods and services made to individuals or businesses that are settled using a payment card or on a third-party network on Form 1099-K. The form was originally established under the Housing Assistance Tax Act of 2008 and required TPSOs to issue Form 1099-K only if a payee received over $20,000 and engaged in more than 200 transactions in a calendar year. In March 2021, the American Rescue Plan Act (ARPA) was enacted and required TPSOs to issue Forms 1099-K to any payee receiving more than $600, regardless of the number of transactions. To ease the transition, the IRS provided phased relief with full implementation of the $600 threshold, anticipated to begin in 2026.
However, on July 4, 2025, the OBBBA was signed into law, repealing the ARPA threshold and retroactively reinstating the original federal requirement of over $20,000 and more than 200 transactions, effectively halting the phased implementation. The change in the reporting threshold is expected to have significant impact on the technology and financial services industries, particularly for companies operating payment platforms, such as rideshare services and payment processors, as well as online marketplaces and gig workers. The restoration of the higher threshold is better aligned with the legislative intent of the regulations as it relieves taxpayers, such as casual sellers, users of digital payment applications and friends splitting expenses from the burden and risk of any unnecessary reporting.
What’s new?
On Oct. 23, 2025, the IRS published an updated list of frequently asked questions (FAQs) for Form 1099-K, which supersedes the earlier FAQs that were posted on Feb. 6, 2024. The IRS FAQs have been revised primarily to align with the reinstated reporting threshold under OBBBA and to eliminate any reference to the thresholds under the American Rescue Plan Act. While the lower Form 1099-K reporting threshold presented in OBBBA provides relief for most filers as volumes are expected to decrease, the measure still presents challenges for taxpayers struggling to manage competing priorities of getting forms out timely this year while simultaneously updating systems and procedures to address changes going forward.
Question 2 of the new FAQs emphasize that the new $20,000 payment and 200 transaction threshold imposed under the OBBBA only applies to payments received through a TPSO. It does not apply to payment card transactions, as there is no minimum reporting threshold for payments received via a payment card transaction where a credit, debit, gift or other stored value card is used. Notably, according to the FAQs, ‘if you received $0.01 of payments from a payment card transaction, you should receive a Form 1099-K for those payments.’
Question 3 of the new FAQs highlight the fact that despite the higher reporting threshold, a TPSO can still elect to issue a Form 1099-K at its discretion even if payments and transactions do not exceed the lower reporting threshold. This may be a viable option for TPSOs this year in particular, given budget, time and resource constraints that may prevent or delay system and process modifications required before year-end to capture payments that exceed the higher reporting threshold. Additionally, according to the FAQs, if a TPSO performed backup withholding under section 3406(a), reporting is mandatory even if payments were less than applicable reporting thresholds. It must also file a Form 945, Annual Return of Withheld Federal Income Tax, with the IRS.
Finally, the updated FAQs emphasize that while the federal threshold has increased, TPSOs may still be required to report transactions that exceed state-specific thresholds, which are often lower than the federal threshold. Several states maintain thresholds significantly lower than the federal threshold, and the thresholds vary by state. For example, Massachusetts and Maryland currently require reporting Form 1099-K state equivalent reporting at $600 while New Jersey requires reporting at $1,000. TPSOs should also note that states not participating in the Combined Federal/State Filing Program—such as Florida and Tennessee—require direct reporting of the state-equivalent Form 1099-K.
The path forward
This legislative reinstatement of the higher Form 1099-K reporting threshold provides meaningful relief for TPSOs by significantly reducing the number of Forms 1099-K that must be issued. The reinstated threshold also eases administrative burdens and lowers the risk of underreporting. However, as emphasized in the FAQs, TPSOs must continue to monitor state-level reporting requirements, as many states maintain thresholds that are lower than the federal standard. Organizations should also take this opportunity to review and update their systems and procedures to ensure compliance with both federal and state thresholds, as well as backup withholding rules. With year-end approaching, it's an opportune time to reassess internal controls and documentation practices to align with the updated federal guidance.
