What's Happening?
The Department of the Treasury and the Internal Revenue Service (IRS) have finalized regulations under Treasury Decision 10053, which govern backup withholding requirements on reportable payments made in settlement of third-party network transactions.
These regulations, effective August 10, 2026, align with the statutory changes introduced by the One, Big, Beautiful Bill Act (OBBBA) of 2025. The OBBBA retroactively reverted the reporting threshold for third-party settlement organizations (TPSOs) to pre-American Rescue Plan Act (ARPA) levels, requiring reporting only when annual gross payments exceed $20,000 and the number of transactions exceeds 200. The final regulations also address a statutory conflict under section 3406, which previously required backup withholding on any transaction, regardless of the de minimis thresholds. The new rules now align backup withholding requirements with the reporting thresholds, providing compliance relief for TPSOs.
Why It's Important?
These regulatory changes are significant for businesses involved in third-party network transactions, as they reduce the compliance burden by aligning backup withholding requirements with reporting thresholds. This alignment helps prevent unnecessary withholding on small transactions, which was previously a challenge under the ARPA's $600 threshold. The changes are expected to ease administrative burdens for TPSOs and reduce the frequency of backup withholding, benefiting small entities by decreasing their regulatory compliance costs. The IRS's decision to adopt these regulations without substantive changes, despite public comments, underscores the importance of statutory consistency and the agency's commitment to reducing compliance challenges for businesses.
What's Next?
With the final regulations now in place, businesses and TPSOs must ensure their compliance systems are updated to reflect the new thresholds and withholding requirements. The IRS has clarified that these regulations apply retrospectively to payments made in calendar years beginning after December 31, 2024. As such, businesses should review their past transactions to ensure compliance with the updated rules. The IRS's emphasis on statutory consistency suggests that future regulatory changes will continue to align closely with legislative mandates, potentially impacting how businesses plan for compliance in the coming years.
