Prop. regs. amend Sec. 3406 backup withholding regulations

The IRS on Thursday issued proposed regulations (REG-112829-25) that reflect changes to the Sec. 3406 backup withholding threshold made by H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act.

Under the proposed regulations, third-party settlement organizations (TPSOs) — for example, PayPal or Venmo — generally are not required to backup-withhold on payments settled through third-party payment networks unless the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200.

H.R. 1 also amended Sec. 6050W to revert the threshold for filing Form 1099-K, Payment Card and Third Party Network Transactions, to the reporting threshold in effect prior to the enactment of the American Rescue Plan Act of 2021, P.L. 117-2.

The changes to Sec. 6050W reporting threshold made by H.R. 1 are already reflected in the existing regulations under that section, so the proposed regulations do not alter those regulations.

The IRS reminded taxpayers, in a news release (IR-2026-03) about the proposed regulations, that backup withholding and reporting thresholds do not affect whether the income is taxable.

The proposed regulations would apply to calendar years beginning after Dec. 31, 2024. Comments are due by March 10.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.