On July 4th, President Trump signed the “One Big Beautiful Bill,” which dramatically alters Form 1099-K, 1099-MISC and 1099-NEC reporting thresholds, effective for payments made after December 31, 2025.
Section 70432 of the “One Big Beautiful Bill” significantly changes Form 1099-K reporting requirements for third-party settlement organizations. Previously, under the American Rescue Plan Act of 2021, these organizations were required to issue Form 1099-K for any payee receiving payments exceeding $600 in a calendar year. However, the implementation of this requirement was delayed multiple times. The IRS maintained the $20,000/200 transaction threshold for tax year 2022 and 2023, then established transitional thresholds of $5,000 for 2024 and $2,500 for 2025. Now, the new legislation permanently reinstates the pre-2021 de minimis exception, requiring Form 1099-K only when a payee receives more than $20,000 in payments and conducts more than 200 transactions in a calendar year starting with transactions occurring in tax year 2025.
Section 70433 raises the reporting threshold for Forms 1099-MISC and 1099-NEC. Under the previous Section 6041 requirements, businesses had to issue these forms for payments of $600 or more to independent contractors and service providers. The new legislation increases this threshold to $2,000 for payments made after December 31, 2025, and includes an automatic inflation adjustment mechanism. Starting in 2027, this dollar amount will increase annually based on the cost of living, rounded to the nearest hundred dollars.
The legislation also modifies withholding procedures for qualified tips and overtime compensation. Starting in 2026, Treasury must update tax withholding rules for the new tip deduction. Until then, employers can use reasonable estimates when reporting overtime payments on tax forms, providing some flexibility during this transition period.
The backup withholding requirements for third-party payment platforms align with the new Form 1099-K thresholds, ensuring consistency across the tax reporting framework. During the transition years, the IRS provided penalty relief for 2024 for failures to withhold and pay backup withholding tax. Under the new legislation, backup withholding is required for payees that meet the reinstated $20,000/200 transaction threshold.
To review the One Big Beautiful Bill in greater detail, click here.
