The ongoing saga of 1099-K reporting requirements for third-party settlement organizations (TPSOs) continues following passage of the One Big Beautiful Bill Act (OBBB) in July 2025.
OBBB counters legislation that passed in 2021, the American Relief Protection Act (ARPA), which required TPSOs to report annual income of $600 or more paid to non-employee contractors during a tax year, a significantly lower threshold from the pre-ARPA requirement of $20,000 in income from a minimum of 200 transactions. Early resistance to ARPA by businesses and the accounting community did delay planned implementation of the new reporting requirement back from 2023 to 2026.
But the OBBB now completely restores the original TPSO reporting requirement, nullifying the APRA change and bringing us, in other words, back to where we started.
What is Form 1099-K And Why Is It Important?
Many non-employee contractors who are paid for goods and services through credit cards, debit cards, gift cards, payment apps and online marketplaces receive an IRS 1099-K form from the payment settlement entities (PSE) that manage those payment transactions.
1099-K, “Payment Card and Third-Party Network Transactions”, is an informational form that tells contractors how much income they generated from sales through the PSEs and is intended to facilitate voluntary income reporting to the IRS for possible tax obligations.
TPSOs are a particular type of PSE that manage payments through apps such as Venmo or Paypal, and other online marketplaces; they have not shared the same requirement that affects other PSEs for reporting any income amount at all on a 1099-K form. Instead, as mentioned, TPSOs have only been required to report on contractor payments if a tax-year total earned by a contractor reaches $20,000 from at least 200 transactions.
This left a significant information reporting gap, as most contractors do not meet that reporting threshold, thereby leaving them responsible for choosing whether to report their earnings and tax obligations. This gap was the focus of the ARPA.
1099-K and the American Rescue Plan Act: How Did We Get Here?
ARPA, signed into law on March 11, 2021, called for a dramatic increase in 1099-K reporting requirements by TPSOs with a new obligation, starting in 2023, to distribute 1099-Ks to any contractor who generated at least $600 in revenue from the total sale of goods and services during a tax year (regardless of the number of transactions). By closing this tax loophole, legislators believed this would increase the transparency of contractor income and generate a significant amount of tax revenue.
Following its passage, however, small business owners and accounting professionals (including the AICPA) expressed concern about its impact including the significant administrative burden that would fall on smaller contractors and business owners, as well as their tax preparers, and the higher risk of reporting errors. Additionally, businesses that paid non-employee contractors would need to adopt more rigorous tax compliance controls to account for contractors that did not provide their taxpayer identification numbers (TIN) such as managing backup withholdings, to avoid IRS penalties.
In May 2023, two legislators introduced a bill, commonly referred to as the Red Tape Reduction Act, that would have alleviated these burdens and raised the final 1099-K reporting requirement for TPSOs from $600 to $10,000.
In response to these concerns, while not backing off from its obligations under ARPA, the IRS slowed implementation of the new TPSO requirements by keeping the $20,000 reporting threshold in place for 2023. This was originally the year the $600 reporting requirement was scheduled to go into effect. In November 2024, the IRS further announced a $5,000 reporting threshold for 2024 and a $2,500 threshold for 2025, before finally requiring the $600 threshold in 2026. (Read our update here).
The 2024 threshold did end up going into effect but passage of the OBBB restored the pre-ARPA $20,000 reporting requirement for TPSOs in 2025 and in future years.
1099-K Reporting and What’s Next for TPSOs
Since passage of ARPA, 1099-K reporting requirements for TPSOs have faced ongoing uncertainty and Windham Brannon has reported on many of these updates (including in response to the original ARPA announcement). We will continue to evaluate this situation. Should any additional changes occur, we will be sure to let you know as soon as they occur and provide as much insight as much as possible regarding their potential impact on you.
We also recognize that many businesses may have already considered adjustments to their accounting operations to accommodate ARPA’s $600 reporting requirement in 2026. For questions about how to navigate the latest update in 1099-K reporting requirements, please contact your Windham Brannon advisor today, or reach out to Tomika Bullet.
