There is a new backup withholding easing for payment networks such as PayPal. If a payee doesn’t give a valid tax ID number, 28% backup withholding will be required after 2011, but only if the payee has more than 200 transactions.
The rules for 1099s are different. Beginning with the 2011 tax year, 1099 forms must be filed for payees with over 200 transactions and more than $20,000 in sales volume a year. The break doesn’t apply to payment card transactions, such as credit cards.
Starting in 2012, if a merchant has a bad tax ID number, credit and debit card firms must start backup withholding. There is no small-seller exemption in this situation.