IRS 1099 Reporting Threshold Changes for 2026

For small business owners, freelancers, gig workers, and anyone who hires independent contractors, the IRS Form 1099 series is a key part of annual tax compliance. These forms help the IRS track nonemployee compensation and certain vendor payments, which means accurate recordkeeping is essential to avoid penalties. Beginning in 2026, the IRS reporting threshold for Form 1099-MISC, Miscellaneous Information, and Form 1099-NEC, Nonemployee Compensation, will rise from $600 to $2,000. This major shift is part of the One Big Beautiful Bill Act (OBBB), signed in July 2025, and represents the most significant 1099 reporting updates in some time.

Use this blog to understand what this new threshold means for your business and how you can avoid mistakes once the rules take effect.

Key Highlights

• The reporting thresholds for 1099-MISC and 1099-NEC increase from $600 to $2,000 beginning in 2026.

• The 2025 filing season still uses the old $600 threshold.

• Backup withholding rules will also align with the new $2,000 level.

• Some businesses will issue fewer forms, but accurate bookkeeping and vendor onboarding remain essential.

• Payments made through payment processor platforms like PayPal or Venmo may trigger different rules under IRS Form 1099-K reporting.

• Preparing accounting systems and vendor workflows in 2025 will help avoid compliance issues in 2026.

What’s Changing in 2026: The New IRS 1099 Thresholds

Overview of the 1099-NEC and 1099-MISC Changes

Beginning in 2026, both Form 1099-NEC and Form 1099-MISC will have their reporting thresholds raised to $2,000. Through the 2025 tax year, the long-standing $600 threshold remains in effect. Starting in 2026, the new threshold will be indexed for inflation, meaning the total amount may increase in future years in line with economic adjustments. Backup withholding will also apply only when total payments to a vendor exceed $2,000, aligning the withholding rules with the updated IRS information return rules.

Why the IRS Increased the Threshold

The OBBB was designed to modernize tax rules and reduce administrative burdens for small businesses. Raising the threshold reflects the IRS's goal of eliminating low-dollar reporting that historically required significant time and resources from payers. With inflation and modern digital payment practices, the $600 threshold no longer aligns with current environments. Adjusting the threshold helps the IRS focus on higher-risk transactions while easing compliance for micro-payments that make up a large portion of annual filings.

Who Is Affected

The threshold changes will affect a wide range of taxpayers. Anyone paying independent contractors should understand how these changes affect their filing obligations, including: 

• Small business owners

• Landlords

• Freelancers

• Gig economy workers

Contractors who typically receive several small payments may get fewer physical tax forms, but will still need to keep accurate wage and income records. Companies that issue many 1099s each year may see a reduction in the total number of forms they need to file, but the responsibility to maintain detailed vendor records will continue.

How These Changes Impact Small Businesses

Fewer 1099s for Some, More Planning for Others

Contractors who receive payments between $600 and $1,999 annually will no longer receive a Form 1099 beginning in 2026. While this is generally a relief for many small businesses, others will need to plan for how this shift affects their annual workflow. Contractors who fall into this range may notice they receive fewer tax documents, but they remain responsible for reporting taxable income on their annual returns. It is important to continue tracking payments in accounting systems even when forms are not required.

Bookkeeping and Recordkeeping Adjustments

Even with fewer 1099 filing requirements for small businesses, accurate recordkeeping remains crucial. Vendor payments should still be tracked throughout the year to support proper:

• Categorization

• Business deductions

• IRS audit defense

Collecting IRS Form W-9, Request for Taxpayer Identification Number and Certification, from vendors before issuing any payment is still a best practice. Proper bookkeeping helps avoid the dreaded January scramble that many business owners face when trying to gather and organize a full year of contractor data. Working with full-service professional bookkeeping support from a partner like 1-800Accountant can simplify vendor tracking and expense categorization, helping businesses stay audit-ready year-round.

Implications for Backup Withholding

Beginning in 2026, backup withholding will also apply only when payments exceed $2,000. Backup withholding can be triggered when:

• A vendor fails to provide correct taxpayer identification information

• The IRS notifies a business of compliance issues

The best way to avoid unnecessary withholding is to ensure all vendor W-9 information is collected at the beginning of the relationship and kept up to date. Strong onboarding and bookkeeping workflows can help minimize errors and prevent avoidable penalties.

How the 2025 Rules Differ

The 2025 Filing Season Still Uses the $600 Threshold

It is important to note that the 2025 filing season remains subject to the existing $600 rule. Forms issued in January 2026 will reflect payments from the 2025 tax year. Busy business owners may mistakenly assume the higher threshold applies immediately, but the new limit only applies to payments made on or after January 1st, 2026.

Using the wrong threshold for 2025 could result in missed filings or penalties.

Planning Ahead for the 2026 Shift

Businesses should begin evaluating their vendor relationships and payment patterns ahead of the transition. Updating accounting systems, chart of accounts, and vendor onboarding workflows during 2025 will create a smoother process once the threshold increases. Reviewing contractor spending habits can also help determine whether your business will issue more or fewer forms moving forward.

Early planning is an easy way to avoid compliance mistakes and taxpayer confusion once the new rule is active. Do this by keeping track of small business tax compliance updates and familiarizing yourself with OBBB Act tax changes. 

How the 1099-K Threshold Interacts with the 2026 Changes

Summary of Updated 1099-K Requirements

While the 1099-MISC and 1099-NEC thresholds will change in 2026, Form 1099-K already saw a major update beginning in 2025. Third-party payment app processors like PayPal, Venmo, and Stripe must issue a Form 1099-K only when a payee exceeds $20,000 in payments and completes more than 200 transactions. The IRS confirmed this higher threshold in its updated FAQs. While this won't affect casual sellers selling personal items infrequently or other personal transactions for money, it will continue to impact online marketplace sellers who must report transactions.

This update may shift who receives which form, since some contractors who collect income primarily through payment platforms may not meet the 1099-K threshold.

What Small Businesses Should Watch For

Businesses must still issue Form 1099-NEC when they pay contractors directly and exceed the new $2,000 threshold, even if the contractor also uses a payment platform. It's always the payer's responsibility to report payments.

Understanding the difference between third-party settlement organization reporting and direct payments helps prevent duplicate or missed filings.

Compliance Checklist: What to Do Before the 2026 Tax Year

Update Vendor Onboarding Processes

Businesses should ensure that each contractor provides a completed Form W-9 before payment is made. Collecting this information early reduces the risk of incorrect taxpayer identification numbers and ensures compliance with backup withholding requirements.

Working with a year-round tax advisor can help ensure vendor intake processes remain compliant.

Review Chart of Accounts and Payment Categories

Proper categorization of contractor payments is essential for accurate year-end reporting. Reviewing and updating the chart of accounts in 2025 will prevent errors and streamline the filing season under the new rules.

Verify Accounting Software Settings

Most accounting software systems need to be updated to reflect new IRS thresholds. Businesses should check vendor classification settings and ensure expense categories are mapped correctly.

1-800Accountant's full-service bookkeeping solution, powered by a real bookkeeper, handles these updates automatically.

Prepare for January Filing Deadlines

Remember that information tax returns, including W-2s and 1099s, are due by January 31st each calendar year. Filing late or submitting inaccurate information can lead to penalties.

Using a trusted service provider like 1-800Accountant can help ensure all forms are filed correctly and on time.

How 1-800Accountant Helps You Stay Compliant

Year-Round Bookkeeping That Tracks Contractor Payments Accurately

Monthly bookkeeping ensures that contractor payments are:

• Tracked consistently

• Categorized properly

• Ready for year-end reporting

Businesses can rely on 1-800Accountant for professional bookkeeping support for an affordable, tax-deductible fee that keeps vendor data clean and accurate.

Proactive Tax Planning to Avoid Penalties

Regulatory updates, such as the increase in the 1099 threshold, highlight the importance of year-round planning. With year-round tax advisory, small business owners can stay ahead of compliance changes and minimize risk.

Done-For-You 1099 Filing and Vendor Support

1-800Accountant provides complete support for:

• 1099 filing

• Vendor management

• Year-end reporting 

Our professional services can save time, reduce stress, and avoid costly mistakes by letting an expert team handle the full process so you can focus on what you do best: operating your business. Scheduling a free 30-minute consultation is an easy first step toward simplifying your tax and accounting workflow.

Next Steps with Reporting

The 2026 IRS 1099 reporting threshold changes mark a significant shift in compliance responsibilities for small businesses and contractors. Beginning in 2026, the $2,000 threshold will apply to both Form 1099-NEC and Form 1099-MISC, and backup withholding rules will be subject to the same limit.

Preparing now by updating accounting systems, strengthening vendor onboarding procedures, and partnering with experienced tax professionals will make the transition smooth and stress-free. With the right support from 1-800Accountant, America's leading virtual accounting firm, adapting to these changes can be straightforward. Taking action today ensures your business stays compliant once the new threshold is in place.