The House of Representatives continues work on a reconciliation bill that would enact significant tax provisions and spending cuts. The various legislative committees have completed work on the areas of the bill within their jurisdiction, including the Ways and Means Committee, which proposed language that would enact $3.8 trillion in tax cuts over the next ten years. Over the weekend, the House Budget Committee consolidated the legislation, and the House Bill is now before the Rules Committee, where a managers’ amendment may be considered before it heads to the House floor. This article is one of a series of articles discussing various proposals in the legislation that touch on tax withholding, reporting, and fringe benefits.
The House Bill proposes to increase the thresholds under current law for information returns required under sections 6041 and section 6050W, as described in more detail below, as well as to modify section 3406 (requiring backup withholding) to align with this proposed change.
Increased Threshold under Section 6041
Section 6041 generally requires anyone engaged in a trade or business who makes payment in the course of such business to a payee to file information returns with respect to those payments. These returns are generally filed on Forms 1099-MISC or Forms 1099-NEC. Under current law, information returns are required only if the amount of payments to that payee in the aggregate are $600 or more. The $600 threshold, which originally corresponded to the amount of the personal exemption included in the Internal Revenue Code of 1954, has been enshrined in the Code for more than 70 years without any adjustment for inflation through 2024. For reference, $600 in 1954 dollars would be approximately $7,000 adjusted for inflation in 2025. The threshold has been a topic of debate and legislative proposals over the years (Small Business Owners’ Tax Simplification Act of 2019, Information Reporting Modernization Act of 2010). For payments made after December 31, 2025, section 111105 of the House Bill proposes to require information returns only if the amount of payments are $2,000 or more. The bill would also index the reporting threshold for inflation for years after calendar year 2026.
The House Bill also amends section 3406(b) to require backup withholding with respect to these payments only when the amount of payments to the payee exceeds the threshold provided in section 6041. However, if payments to the payee were required to be reported in the preceding calendar year, backup withholding is required with respect to those payments, even if the threshold is not met in the current year. This is consistent with the application of backup withholding under current law for these types of payments.
Increased Threshold Under Section 6050W
Section 6050W requires, in part, that third party settlement organizations are required to report payments they make in settlement of third party network transactions to any participating payee if the payments to the payee exceed $600 in the aggregate. This threshold was adopted as part of the American Rescue Plan Act of 2021, effective for calendar years beginning after December 31, 2021. Prior to this change, reporting was required only if the payments exceed $20,000 in the aggregate and the aggregate number of transactions exceeds 200.
Despite the statutory effective date, Notice 2013-10 and Notice 2023-74 retained the prior threshold for calendar years 2022 and 2023. (See prior coverage.) Notice 2024-85 provided that the new threshold would be phased in over a few years. Specifically, the threshold would fall to $5,000 for 2024 and then to $2,500 for 2025. Beginning in 2026, the $600 threshold provided by current section 6050W was intended to take effect.
The House Bill amends the threshold to revert to the prior law. Therefore, the House Bill proposes to require reporting only if the payments exceed $20,000 in the aggregate and the aggregate number of transactions exceeds 200. This change would be effective as if it were included in the American Rescue Plan Act of 2021 and therefore would be effective for calendar years after December 31, 2021.
The House Bill also amends section 3406(b) to take into account this new threshold. The House Bill proposes to require backup withholding only if the payments are required to be reported under proposed section 6050W. However, if the payments were required to be reported in the preceding calendar year, backup withholding would still be required. The approach in the House Bill differs from the approach in effect prior to the ARPA, which only considered the number of transactions threshold in determining whether backup withholding applied. The amendment to section 3406(b) would apply to calendar years beginning after December 31, 2024.