From the official announcement by IRS ↗
The Internal Revenue Service (IRS) has completed a regulation that directly affects online sellers, landlords, and anyone receiving money through PayPal, Venmo, and other third-party payment platforms. According to an IRS announcement on August 10, 2026, the backup withholding rule for transactions processed through third-party payment networks has been adopted as official regulation, keeping the content unchanged from the proposal issued earlier in the year, after the agency received eight public comments.
What is backup withholding? It is a mechanism that requires companies such as PayPal or Venmo to withhold a portion of payment amounts and remit them to the IRS if the payment recipient fails to provide a correct individual tax identification number. According to the Taxpayer Advocate Service, the withholding rate is 24% of the transaction amount.
The core change lies in the threshold for application. The One, Big, Beautiful Bill Act, signed on July 4, 2025, restored the reporting and withholding thresholds to the previous level before 2021: applying only when the total amount received through a platform exceeds $20,000 and involves more than 200 transactions in a year, calculated separately for each seller. The IRS's latest regulation is effective for payments from calendar years beginning after December 31, 2024, meaning it applies retroactively to 2025.
Those affected are small-scale sellers on platforms such as Etsy and eBay, as well as those receiving rental income and freelance payments through applications. Before the new law, this threshold had been progressively lowered: the IRS previously announced through Notice 2024-85 that 2024 and 2025 were transition years, with temporary thresholds of $5,000 then $2,500, before moving toward $600. The new law's restoration of the $20,000 threshold helps reduce the number of Form 1099-K samples that must be issued, after previous estimates suggested 44 million forms would be sent to people who did not expect to have to report income.
The IRS has also updated the frequently asked questions on its website, emphasizing that even without receiving a Form 1099-K, income must still be reported for tax purposes as usual. Additionally, some states may apply reporting thresholds lower than the federal threshold. For sellers with consignment-type transactions, such as those through auction houses, the backup withholding rate was once applied at different levels in the past, according to Numismatic News regarding the collectibles auction industry.
Readers can view the full text of the official IRS announcement at the source link below.
Income must be reported for tax purposes, regardless of whether you receive a Form 1099-K.
Analysis
This regulation marks the conclusion of a series of changes stretching back to 2021, when the American Rescue Plan Act lowered the reporting threshold to $600, forcing the IRS to continuously delay implementation through multiple transition years. Congress's reversal of the threshold back to the previous level of $20,000 demonstrates pressure from platforms such as PayPal and Etsy, which had previously lobbied for law changes without success. However, the IRS's decision to maintain its original proposal without modification despite feedback requesting application only going forward shows that the agency wants to definitively resolve the ambiguity that has persisted for years, rather than extend another transition period as happened previously.
Diaspora Impact
If you sell goods online, rent out rooms, or receive work payments through Venmo, PayPal, and your annual total is below $20,000 or involves fewer than 200 transactions, you will not be subject to backup withholding and need not take further action at this time. The most important thing is to ensure your personal tax identification number (SSN or ITIN) is correctly updated in your payment platform's records, to avoid having 24% of received funds withheld. Income must still be reported on your tax return regardless of whether you receive a Form 1099-K. You should verify tax information directly on IRS.gov, not through unofficial intermediary services.
Bảo Nguyễn
Bảo Nguyễn founded Saigon Sentinel to give the Vietnamese diaspora truly independent, in-depth community coverage at a time when misinformation moves faster than fact-checks and the language barrier makes verification harder than it should be. He sets the editorial standards and quality controls that govern the reporting, chooses the subjects, writes and edits each article, reads it against its sources before publication, audits published output, and handles corrections.