Backup Withholding on Third Party Network Transactions
Summary
The IRS is proposing a rule that would require payment platforms like PayPal, Venmo, and Cash App to withhold (set aside) a portion of certain transactions and send that money to the government as a backup tax collection method. This affects people who use these platforms for payments and businesses that receive money through them, as it could reduce the amount they receive or owe in taxes.
Key Points
- 1Payment platforms would be required to hold back a percentage of money from certain transactions and send it to the IRS instead of passing it directly to recipients
- 2This backup withholding applies when users don't provide proper tax identification information or when there are red flags suggesting unreported income
- 3The rule affects millions of Americans who use digital payment apps for everything from splitting rent to running small businesses
- 4People and businesses can avoid withholding by providing correct tax information and keeping their tax records current with the IRS
- 5The public has until March 11, 2026 to submit comments on the proposed rule before the IRS makes a final decision
Key Dates
January 9, 2026
This summary is for informational purposes only. It may not capture all nuances of the regulation. Always refer to the official text for authoritative information.
The Digest Network
AI Comment Drafter
Describe your concern and we'll help you draft a substantive comment.
AI-generated draft. Always review and edit before submitting. Replace all [bracketed placeholders] with your specific details. Your comment should reflect your genuine views and experience.