TITLE: IRS Updates for 2026: New Penalty Relief, 1099-K Threshold, and Compliance Risks
For UK ecommerce sellers trading in the United States, keeping up with the Internal Revenue Service (IRS) can often feel like a full-time job. Between shifting reporting thresholds and complex filing requirements, the threat of high penalties is a constant concern. However, recent developments in July 2026 offer a rare piece of good news, alongside some critical new compliance hurdles you must prepare for.
The IRS has officially launched a new system designed to reward compliant taxpayers, while simultaneously tightening the net on international reporting and fund transfers. If you are an Amazon seller, a Shopify store owner, or a digital service provider based in the UK with US-source income, these updates will directly impact your cash flow and compliance strategy.
IRS Launches Automatic Exemption from Penalty (AEP)
On July 8, 2026, the IRS announced IR-2026-83, introducing the Automatic Exemption from Penalty (AEP) program. This is a significant shift in how the US tax authority handles minor compliance slips for those with a strong track record.
The AEP system is designed to replace the old “First Time Abate” (FTA) process for original returns filed from 2025 onwards. The primary benefit is that eligible taxpayers no longer need to call the IRS or submit a formal request to have penalties waived. If you qualify, the relief is applied systemically.
To benefit from this irs penalty relief 2026, you must meet the “Qualifying History” criteria:
- Timely Filing: You must have filed all required returns for the prior three years on time.
- Timely Payment: You must have paid any tax due for the prior three years by the deadline.
The AEP covers the most common administrative penalties, including failure to file, failure to pay, and failure to deposit. This is a huge relief for UK companies that might experience a one-off administrative delay despite years of perfect compliance. Don’t worry if you make a small error; if your history is clean, the IRS system will now protect you automatically.
1099-K Threshold Restored to $20,000 for 2026
One of the most debated topics in international sellers us tax compliance has been the Form 1099-K reporting threshold. Under the Our Bridge for Business Act (OBBBA), the 1099-K threshold 2026 has been officially restored to $20,000 and 200+ transactions.
For the past few years, there was significant pressure to lower this threshold to as little as $600. The restoration to the $20,000 level means that many smaller UK sellers may not receive a 1099-K from platforms like Amazon, eBay, or Etsy this year.
However, it is essential to remember that even if you do not receive a Form 1099-K, your obligation to report your US-source income remains. Whether you are navigating tax as an Amazon seller in the UK or running a standalone site, accurate bookkeeping is the only way to ensure you are ready for year-end filings.
The New 1% Remittance Transfer Tax Under OBBBA
While penalty relief is expanding, a new cost has emerged for moving money out of the US. Proposed regulations issued in April 2026 under the OBBBA have introduced a 1% Remittance Transfer Tax.
This tax applies specifically to remittances sent from the US to foreign recipients that are funded by:
- Cash
- Money orders
- Cashier’s checks
The good news for most professional ecommerce businesses is the exemption list. The tax does not apply if the transfer is funded from a US bank account or via a US-issued debit or credit card. If you are using a structured payout system from your marketplace to a US business bank account, you likely won’t be hit by this 1% fee. This highlights the importance of maintaining proper US banking infrastructure for your cross border vat and income tax operations.
Form 5472 Enforcement Reaches New Heights
While the IRS is becoming more “automatic” with penalty relief, they are also becoming more “automatic” with enforcement. Form 5472, the information return for 25% foreign-owned US corporations (including many US LLCs owned by UK residents), is now under intense scrutiny.
The IRS has begun issuing automated penalty notices for missing or late Form 5472 filings. These penalties are not small; they start at $25,000 per form, per year.
The IRS and FinCEN (the Financial Crimes Enforcement Network) are now sharing data more fluidly than ever before. If you have a US entity but haven’t kept up with your US compliance and accounting, the risk of receiving an automated $25,000 fine is higher in 2026 than at any point in the past. To avoid these fines, you must ensure that every related-party transaction is tracked and reported annually.
Step-by-Step Compliance Checklist for 2026
To ensure your UK business stays on the right side of the IRS while taking advantage of new relief programs, follow this structured approach:
- Review Your Filing History: Check your US tax filings from 2023, 2024, and 2025. If they were all timely, you are likely eligible for the new AEP relief if a mistake happens in 2026.
- Verify Your Payout Methods: If you are moving funds to the UK, ensure they originate from a US bank account to avoid the new 1% Remittance Transfer Tax.
- Audit Your Form 5472 Obligations: If you trade through a US LLC or C-Corp, confirm that all “reportable transactions” between the UK parent/owner and the US entity are documented.
- Monitor Marketplace Sales: Even with the $20,000 1099-K threshold, keep your own internal sales records. Do not rely solely on marketplace reports for your tax calculations.
- Maintain Digital Records: The IRS’s move toward automated enforcement means they are using data matching. Ensure your digital bookkeeping is reconciled daily to match the data the IRS receives from platforms.
How Sterlinx Global Supports Your US Growth
Navigating US tax as an international seller requires a system that moves as fast as the IRS. At Sterlinx Global, we provide a full-suite compliance solution for UK companies trading in the US. We handle the heavy lifting of bookkeeping, tax calculations, and federal filings, ensuring you never have to worry about missing a deadline or facing a $25,000 penalty.
Whether you need help with UK limited company accounting or specialized US tax filings, our tech-driven approach ensures your data is accurate and your business remains fully compliant across borders.
If you are concerned about the new Form 5472 enforcement or want to ensure your 1099-K reporting is handled correctly, we are here to help.
Contact us today to discuss your US tax compliance needs.
Frequently Asked Questions
Does the Automatic Exemption from Penalty (AEP) cover Form 5472?
Generally, no. The AEP program focuses on failure to file and pay penalties for core income and employment tax returns. Information returns like Form 5472 usually fall outside the scope of automatic relief and remain subject to strict penalties.
