Red Tape Reduction Act of 2025
The Red Tape Reduction Act of 2025 would roll back certain reporting requirements for third party settlement organizations (TPSOs) by reinstating a de minimis threshold that existed before the American Rescue Plan Act (ARPA). Specifically, TPSOs would only have to report information under the Form 1099-Compliance regime for third party network transactions if either the payments exceed $10,000 in aggregate, or the number of such transactions exceeds 50 in a year. The amendment applies to transactions settled after December 31, 2024. The bill also extends this de minimis approach to backup withholding reporting under the IRS code, with a calendar-year threshold and an exception based on prior-year reporting activity. If in the prior year there were reportable payments, the threshold-based exception does not apply in the current year, meaning reporting would continue (i.e., no de minimis relief) for that year. In short, the act aims to reduce administrative burden for small-volume transactions by restoring lower, de minimis reporting thresholds and tying backup withholding reporting to the same thresholds, with a consumer-friendly retroactive (to new-year settlements) but not retroactive to past years. Sponsor information: The bill states Mr. Cassidy and Ms. Hassan as sponsors. Status is Introduced; no final passage yet.
Key Points
- 1Reinstates de minimis reporting threshold for 6050W reporting by third party settlement organizations:
- 2- Report only if payments exceed $10,000 in aggregate or if the number of third party network transactions exceeds 50 in a year.
- 3- Applies to third party network transactions settled after December 31, 2024.
- 4Applies de minimis rule to backup withholding (IRC 3406(b)):
- 5- A payment settled through a third party network is reportable for backup withholding only if yearly aggregate thresholds (number of transactions and dollar amount) are exceeded, using the same thresholds as the 6050W rule.
- 6- Adds an exception: if the prior calendar year had any reportable payments, the de minimis threshold rule does not apply for the current year (i.e., reporting would be required).
- 7Thresholds are per calendar year and per participating payee:
- 8- Amount threshold: $10,000.
- 9- Transaction-count threshold: 50 transactions.
- 10Effective dates:
- 11- 6050W reporting thresholds: transactions settled after December 31, 2024.
- 12- 3406(b) backup withholding thresholds: calendar years beginning after December 31, 2024.
- 13Overall intent: reduce regulatory red tape and compliance burden for small-volume, low-dollar TPSO-participating payees while preserving reporting for higher activity.