On August 10, 2026, the IRS and Treasury Department published final regulations (T.D. 10053) that revise the backup withholding rules for third-party network transactions under Internal Revenue Code (IRC) Section 3406. The regulations implement changes made by the One Big Beautiful Bill Act and align the backup withholding threshold with the higher Form 1099-K reporting threshold. They are effective upon publication and applicable to payments made in calendar years beginning after December 31, 2024.
The final regulations reflect Section 70432(b)(1) of the One Big Beautiful Bill Act, which amended Section 3406(b) to tie backup withholding for third-party settlement organizations to the same threshold used for Form 1099-K reporting. A payment is only treated as reportable, and subject to withholding, once a payee’s transactions exceed 200 and payments exceed $20,000 in the same calendar year.
Once both thresholds are crossed, withholding applies to the transaction that causes the later of the two to be exceeded, plus every payment made to that payee for the rest of the year. The final regulations also include a look-back requirement. If a payee received a reportable payment in one calendar year, every payment made to that payee is subject to backup withholding for the entire following year, even if that year’s own activity would not independently cross the threshold. This obligation carries forward year after year until a full calendar year passes with no payments to that payee, at which point the withholding requirement resets.
The final regulations also address a few compliance points raised during the comment period. Of the comments within scope, three commenters found the proposed regulations confusing without offering specific language, and one sought referral to other agencies for administrative review, with neither prompting a change to the final rule. Treasury and the IRS did address a request that the changes apply prospectively only, declining because the applicability date mirrors section 70432(b)(1)’s own effective date under the OBBBA, so the regulations do not conflict with the statute they implement for payments made in calendar years beginning after December 31, 2024.
To review the final regulations in greater detail, click here.
