Episode 31: Treasury Aligns Backup Withholding with New 1099 Reporting Thresholds
The Treasury Department has released proposed regulations that would update the backup withholding rules to align with the new information reporting thresholds created by the One Big Beautiful Bill.
For decades, the familiar $600 reporting threshold under Sections 6041 and 6041A remained unchanged. Beginning in 2026, that threshold increases to $2,000 and will be adjusted annually for inflation. However, Treasury regulations under Section 3406 still reference the old $600 amount for backup withholding purposes. The newly proposed regulations would fix that mismatch by tying the backup withholding trigger directly to the inflation-adjusted reporting threshold in effect each year.
In this episode, Jason explains what the proposed regulations do, why they are necessary, and what they mean for accounts payable professionals. You'll also hear a practical walkthrough of when backup withholding is required, how the threshold works in real-world payment scenarios, and a common question about which payments are actually subject to withholding once a payee crosses the reporting threshold.
If you handle vendor payments, W-9 compliance, or 1099 reporting, this is an important update to understand as organizations prepare for the coming changes.
Key Topics Covered:
- The new $2,000 information reporting threshold beginning in 2026
- Why Treasury needed to update the backup withholding regulations
- The relationship between Sections 6041, 6041A, and 3406
- When backup withholding is triggered
- How to determine which payments are subject to withholding
- Practical examples for accounts payable departments
Resources:
- Proposed Treasury Regulations under IRC Section 3406
- IRC Sections 6041 and 6041A
- One Big Beautiful Bill Act reporting threshold changes
Information Return Intelligence is hosted by Jason Dinesen and sponsored by IOFM, the Institute of Finance & Management.
Welcome to this week's Information Return Intelligence, the fast moving weekly podcast where we talk about all things related to 1099s and other things in the world of information reporting. My name is Jason Dinison. I've been teaching on 1099s for 14 years, and I also am a practicing accountant. As always, Information Return Intelligence is sponsored by IOFM, the Institute of Finance and Management. This week we talk about the Treasury Department releasing proposed regulations to update backup withholding thresholds to conform with the increased reporting thresholds that you're familiar with going from 600 to 2000. So let's jump right in and first give you the background. We had been stuck at $600 for many, many years, since 1954. If you go back and listen to earlier podcasts, we talk about the $600 threshold and the history of it. That changed in the one big beautiful bill last summer, which for 2026 changes that $600 threshold to $2,000. And then that amount will be adjusted for inflation each year going forward. Now that threshold comes from sections 6041 and 6041, capital A of the code. And the issue here is that backup withholding comes from section 3406. And in particular, there's a regulation under section 3406 that specifically references $600 as the point at which backup withholding is supposed to start. So the Treasury Department has released these proposed regulations to update the wording in that regulation under section 3406 to change it from saying $600 to instead say the dollar amount in effect for such calendar year under section 6041A. Because again, remember that it's 2,000 this year, but then we'll go up with inflation in 2027 and a little bit in 2028 and so forth. So the Treasury Department is basically fixing the regulation to make it so that the dollar amount always ties to whatever the current inflation adjusted amount is. Now, what are the practical implications for accounts payable departments? We'll talk about that next. But first a word from our sponsor, IOFM, the Institute of Finance and Management. If you're interested in this topic at all, which you must be if you're here on this podcast, then IOFM is the perfect place for you. You can join around 10,000 like-minded individuals who find a home with IOFM, whether it's educational and compliance content around 1099s, which I do, or it's other things in the finance field, different surveys, benchmarking white papers, all sorts of things for anyone in accounts payable, accounts receivable, finance, check them out at IOFM.com. And now back to the show. So this change affects issuers of 1099s by changing the level at which backup withholding applies. So first of all, when do you have to do backup withholding to begin with? Well, the answer to that is if you're making a reportable payment, so one that'll end up on a 1099, and you don't have the recipient's taxpayer ID number, you have to do backup withholding. So if we look at an example, you pay that guy $500 as a contractor, you don't have his 10 at the time you make the payment. Now that's bad. And you need to fix that problem. But technically, you actually haven't violated anything. In fact, if that's all you do is pay him $500 during the year, there wouldn't be any problem because you're not going to issue a 1099. Therefore, no backup withholding is required. The problem that comes into play is if you pay him again in the same calendar year and you push past the reporting threshold. So let's say it's the month of June, and you pay him $500, and you think, Well, I'm not gonna pay him again, I'm done working with him. But then something comes up in November and he does $2,000 worth of work for you, and you pay him, you've now paid him $2,500 on the year which is past the reporting threshold. So if you don't have his 10, you've got a problem and you need to do backup withholding. And just real quick on addressing a question that comes up is in that scenario I just mentioned, you paid him $500 in June and $2,000 in November. How much do you do the backup withholding on? Is it the full $2,500 you paid him during the year? The $2,000 you paid him in November? Is it just on the $500, the amount above the reporting threshold? The answer is that you withhold on the entire payment amount of the payment that puts you past the threshold. So in this case, that would be $2,000. That payment, that transaction, puts you at the threshold. So you have to withhold on the entire payment. Now let's say that you pay that guy instead five hundred dollars a month. So five hundred in June, five hundred in July, five hundred in August, five hundred in September. That means in September you will reach $2,000 paid to him. So by September, you'll now have a reporting obligation. That means that $500 transaction to him in September you will backup withhold on. And then all future payments going forward until you get your contractor's taxpayer identification number. That'll do it for this week's episode of Information Return Intelligence powered by IOFM. I'm Jason Dynason, and we'll talk to you again next week. Dynason Media Ventures.