S. 1425: Red Tape Reduction Act of 2025

This bill, titled the Red Tape Reduction Act of 2025, aims to amend existing tax laws related to third-party payments through settlement organizations. The primary focus of the bill is to modify how certain small payments are reported for tax purposes.

Key Provisions of the Bill

The bill includes the following significant changes:

1. Reinstatement of De Minimis Exception

The bill reinstates a prior exception that reduces the reporting burden on third-party settlement organizations for small payments. Specifically:

• These organizations will not be required to report payments made to individuals if the total amount exceeds $10,000, or
• If the number of transactions exceeds 50 during the calendar year.

This change reverses the current requirements that were adjusted by the American Rescue Plan Act, thereby enabling simpler reporting for small transactions.

2. Application of the De Minimis Rule to Backup Withholding

The bill also modifies rules regarding “backup withholding.” In particular, it states that:

• A payment related to third-party network transactions will only be considered a reportable payment if:
• The total number of transactions during the year exceeds 50, and
• The total dollar amount of those transactions exceeds $10,000.
• If any payments were reportable in the prior year, this threshold does not apply, meaning that if past payments met the reporting criteria, new payments could be subject to reporting.

This is intended to simplify the process for companies operating through third-party networks, such as payment platforms.

3. Effective Date

The new reporting rules outlined in this bill would apply to transactions taking place after December 31, 2024. This means companies and individuals would have a transition period to prepare for the updated requirements.

Impact Summary

The bill is primarily aimed at reducing the compliance burden for businesses and individuals involved in low-value and low-volume transactions through third-party settlement organizations. This could benefit small businesses, freelancers, and individuals who may receive numerous small payments and previously faced extensive reporting requirements.

Relevant Companies

• PYPL - PayPal Holdings, Inc.: As a major provider of online payment solutions, the changes would likely reduce reporting requirements for many small transactions facilitated through its platform.
• ADBE - Adobe Inc.: Adobe, with its subscription-based services and small transaction payments, could see changes in how it reports on small sales and services provided through third-party networks.
• INTU - Intuit Inc.: As a provider of financial and tax preparation software, Intuit may need to adjust its reporting tools and client advice based on the new thresholds for reporting small payments.