Since the passage of the One Big Beautiful Bill in early July, Democrats have devoted their summer to campaigning against the bill’s cuts to various social programs. Some took to the streets, organizing nationwide “Family First” protests that took place on July 26 but barely made a ripple. Others have chosen to stoke fear, with Chuck Schumer calling the bill the “We Are All Going to Die Act.” And some left-leaning outlets are looking forward, worrying about the headaches it may cause downtrodden groups, such as the poker-playing community.
Amid all the panic, there are indeed some major legitimate criticisms of the bill. It’s full of tax gimmicks like preferential treatment for tips and overtime or deductions for auto interest, and some estimate it will add $3 trillion to the deficit over the next ten years.
But there is one obscure provision that is an unambiguous win for all Americans: the restoration of the 1099-K threshold for third-party settlement organizations (TPSOs). This threshold was reduced to $600 in total transactions per year under Biden’s American Rescue Plan, and would have impacted peer-to-peer platforms like PayPal, Venmo, and the Cash App; intermediaries that small businesses rely on like Stripe, Square, and Shopify; and even apps that facilitate side gigs like Airbnb, Uber, and Lyft. That means TPSOs were on the hook to report to the IRS and send tax paperwork to anybody who sent or received money totaling $600 over the course of the year, split over any number of transactions. This includes contractors or small businesses that use one of the TPSO platforms mentioned, as well as anybody who uses those platforms to reimburse friends or make personal purchases.
The Biden administration was phasing in this decreased threshold, with the strict $600 requirement to go into effect during the 2026 tax year. The One Big Beautiful Bill ends that, returning the threshold to $20,000 across at least 200 transactions, as was the case prior to the Biden bill. The IRS rules caused a stir when first approved in 2021 and were themselves a step back from a proposal that sought to introduce a $600 reporting threshold for every personal bank account in the nation, instigating valid concerns that the IRS’ attempt to nickel-and-dime freelancers would sweep up more innocent Americans in the process.
Everybody should welcome the end of the $600 1099-K threshold, not only because of the inconvenience it would have caused for the self-employed, but also because of the innocent people who could have been swept up in the crossfire. Despite all the anti-corporate rhetoric on the American Left, Democrats’ support of the low threshold only contributed to the entanglement of big government with corporate power, consistent with their deputization of large companies to enforce their agenda on issues as broad-ranging as diversity, healthcare, and taxation. Democrats may be disappointed at the inability to enforce their taxation regime by disincentivizing self-employment as the Biden-era rules did, but the changes in the One Big Beautiful Bill reduce burdens on self-employed individuals, payment companies, and even the IRS itself.
The increase in the threshold also reduces the substantial room for error that was left in the hands of PayPal, Venmo, and similar platforms. Platforms generally require a memo for all payments, and these are supposed to play a role in the IRS crackdown, but this could go wrong in so many ways. A client and provider with a trusting relationship might send payments in a way that is not clearly a business expense. Meanwhile, one friend reimbursing another for a personal expense with a facetious memo — say, “Thank you for your service,” — could come under IRS scrutiny.
The return to a far more reasonable $20,000 threshold and at least 200 transactions is a win for the self-employed and small businesses. But it’s also a win for the TPSOs who no longer have the obligation to regulate them on behalf of the government, as well as individuals who want to reimburse family or friends, or shop on Facebook Marketplace or Craigslist, without turning it into a federal tax case.
Of course, some revenue will fall through the cracks, whether taxpayers intend to underpay or not. But the marginal benefit of an invasive tax enforcement regime is likely low and the current administration’s 25 percent reduction in the IRS workforce seems to corroborate that, more than reversing Joe Biden’s net IRS expansion of 20,000 staffers and ignoring 10,000 remaining roles the Biden administration planned to fill. A government willing to waste prior taxpayer resources beyond the point of diminishing returns has really lost the plot, and this change is a welcome course correction.
