The Red Tape Reduction Act modifies how third-party payment processors (like PayPal, Venmo, and Square) report transactions to the IRS. Under current law, these platforms must report payment information for most transactions, but this bill raises the reporting threshold back to what it was before the American Rescue Plan Act of 2021. Specifically, payment processors would only be required to report transactions if a person receives either more than $10,000 in payments or more than 50 transactions in a calendar year. The bill also applies this higher threshold to backup withholding requirements, meaning the IRS would only withhold taxes on third-party network payments if they exceed the same thresholds. These changes take effect for transactions settled after December 31, 2024, and apply to calendar years beginning after that date. The legislation aims to reduce reporting requirements for small-scale payment recipients and payment platforms.
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