TITLE: 1099-K Threshold Restored and UNICAP 3PL Costs: What International Ecommerce Sellers Must Review for 2026
The IRS has restored the federal Form 1099-K threshold for third-party settlement organisations. At the same time, ecommerce businesses using US fulfilment centres need to review how they treat warehouse and handling costs under the UNICAP inventory rules.
These changes matter if you operate a UK Limited Company, USA LLC, Canadian Corporation, Australian entity, or another international business selling into the USA through Amazon, Shopify, eBay, Etsy, TikTok Shop, or your own website.
Check the new 1099-K threshold before you reconcile 2026 sales
For 2026, a third-party settlement organisation (TPSO) generally only needs to issue Form 1099-K when both conditions are met:
- Your gross reportable payments exceed $20,000.
- You receive more than 200 transactions during the calendar year.
The IRS confirmed that the One Big Beautiful Bill restored the previous federal threshold. This means the federal 1099-K threshold is not $600 or $2,500 for TPSO transactions in 2026.
However, the threshold applies only to third-party network transactions. It does not apply in the same way to payment card transactions.
Separate payment card transactions from marketplace payments
Credit card, debit card, and stored-value card transactions do not have a minimum reporting threshold. A payment processor may issue Form 1099-K for card payments regardless of the amount or number of transactions.
This distinction is essential for your ecommerce bookkeeping:
- Amazon marketplace payments may fall within the third-party network rules.
- PayPal and similar payment platforms may be treated as TPSOs.
- Direct Shopify payments processed through a card network may be reportable without a minimum threshold.
- A single platform may provide different reporting for card and third-party network transactions.
The IRS Form 1099-K instructions also state that the form reports gross payments. Fees, refunds, credits, shipping amounts, and other adjustments may not be deducted from the amount shown in Box 1a.
Do not treat the 1099-K figure as your net sales. Import the platform settlement report and reconcile:
- Gross sales.
- Refunds and returns.
- Marketplace commissions.
- Payment processing fees.
- Shipping charges.
- Advertising deductions.
- Reserve balances.
- Currency conversion differences.
- Transfers to your UK or international bank account.
This process will prevent you from overstating income or recording a platform payment twice.
Protect your international seller records from US reporting errors
A UK ecommerce company may not receive a US Form 1099-K in every situation. The outcome depends on the payment provider, the address and tax status held on the account, and whether the business is treated as a US or foreign payee.
The 2026 IRS instructions include exceptions for certain payments made by US payers to foreign payees with foreign addresses when appropriate documentation is held. A US address, US bank account, or information suggesting that the payee is a US person may change the reporting position.
Keep your tax documentation current. Depending on the entity and payment arrangement, this may include a completed W-8 form, such as Form W-8BEN-E for an eligible foreign company.
You should also keep evidence showing:
- The legal entity receiving the payments.
- The country of incorporation.
- The tax identification details provided to each platform.
- The settlement account owner.
- The payment processor used.
- The sales channel connected to each payout.
- The conversion method used for foreign currency.
This is particularly important for UK Limited Companies using Amazon FBA or Shopify across the UK, USA, Canada, Australia, and Europe.
Our record-keeping guide explains why consistent records are essential when your business uses multiple platforms and currencies.
Review state reporting before assuming $20,000 is the only threshold
Federal reporting does not always tell the whole story. States can apply separate information-reporting requirements, and a state may request a copy of a 1099-K even where the federal threshold is not met.
For example, Massachusetts requires reporting for certain TPSO payments of $600 or more to a payee with a Massachusetts address, regardless of the number of transactions. This can create a state-level reporting obligation below the federal $20,000 and 200-transaction test.
Illinois has separate requirements for transmitting certain 1099-K information to the Illinois Department of Revenue. Its guidance refers to payees with an Illinois address and a threshold involving more than four transactions and cumulative payments exceeding $1,000, alongside federal filing conditions.
New Jersey also requires copies of certain Form 1099 information returns where payments reach $1,000 or more, or where New Jersey tax was withheld. This is a state filing requirement. It should not automatically be treated as a separate federal 1099-K issuance threshold.
Review your nexus and customer or payee information if your business has activity connected with:
- Massachusetts.
- Vermont.
- Maryland.
- Virginia.
- The District of Columbia.
- Montana.
- North Carolina.
- New Jersey.
- Missouri.
- Illinois.
State rules can change. Check the relevant revenue department guidance before preparing your 2026 information returns. A platform’s federal form does not replace your responsibility to maintain complete sales and tax records.
Calculate 3PL costs correctly under the UNICAP rules
The second major issue concerns inventory accounting. Under IRC Section 263A, businesses that acquire property for resale may need to capitalise direct costs and certain indirect costs into inventory.
For an ecommerce seller, this can include costs charged by an off-site fulfilment provider, such as:
- Storage and warehousing.
- Receiving and put-away.
- Picking and packing.
- Internal movement of goods.
- Repackaging.
- Handling and fulfilment activities.
These are often called 263A 3PL costs. If your business is subject to UNICAP, you generally cannot deduct all qualifying storage and handling costs immediately. Instead, you allocate the relevant costs to inventory and recover them through cost of goods sold when the products are sold.
This can affect your:
- Closing inventory balance.
- Cost of goods sold.
- Gross profit.
- Taxable income.
- Year-end accounts.
- Stock valuation reports.
Do not simply post every Amazon FBA or third-party logistics invoice to “fulfilment expenses” without checking your applicable inventory method.
Test the small-business exception before capitalising every warehouse charge
A small-business taxpayer may be exempt from Section 263A if it meets the Section 448(c) gross receipts test and is not a tax shelter.
For taxable years beginning in 2026, the inflation-adjusted average annual gross receipts threshold is $32 million, measured over the relevant three-tax-year period. Aggregation rules may require related entities to be considered together.
If you qualify, Section 471(c) may allow you to use an alternative inventory method. For example, you may be able to:
- Treat inventory as non-incidental material
