The IRS Just Changed the 1099 Rules

Here’s What Small Business Owners Need to Know

The 1099 reporting changes 2026 are set to impact how small business owners track and report contractor payments. If you pay freelancers or independent workers, these updates could reduce paperwork—but only if your systems are updated in time.

Here’s What Small Business Owners Need to Know.

If you pay contractors, freelancers, or any independent workers, the rules just changed and most business owners don’t know it yet.

The One Big Beautiful Bill, signed into law on July 4, 2025, made several changes to 1099 reporting that take effect for the 2026 tax year. That means payments you make in 2026 will be reported under new rules when 1099s go out in January 2027. If your bookkeeper hasn’t flagged this yet, now is the time to get ahead of it.

The threshold for 1099-NEC and 1099-MISC reporting just tripled. If you’re still tracking $600, you’re working off the old rules.

The big one: the reporting threshold just tripled

For years, the rule was simple: pay a contractor $600 or more in a year and you need to send them a 1099-NEC. That number was $600 for so long that most business owners have it memorized.

Starting with payments made in 2026, the threshold is now $2,000. That applies to both 1099-NEC (nonemployee compensation — your contractors, freelancers, consultants) and 1099-MISC. And starting in 2027, that $2,000 will be adjusted for inflation each year, so the number will creep up over time.

What this means practically: contractors you paid between $600 and $1,999 in 2026 no longer require a 1099. That’s a real reduction in paperwork for a lot of businesses.

Important: the old $600 threshold still applies to 2025 payments. If you’re filing 1099s in January 2026 for work done in 2025, nothing changes. The new rules kick in for 2026 payments, reported in January 2027.

QUICK REFERENCE
2025 payments (filed January 2026): $600 threshold still applies.
2026 payments (filed January 2027): New $2,000 threshold applies.
2027 and beyond: $2,000 adjusted for inflation each year.

Three other things worth knowing

1099-K is going back to $20,000. If you sell through platforms like PayPal, Venmo, Etsy, or Shopify, you may have heard about the proposed $600 threshold for 1099-Ks. That rule was reversed. The threshold is back to $20,000 and 200 transactions, which is where it was before things got complicated. Most small business owners won’t receive a 1099-K unless they’re doing serious volume through these platforms.

W-9s still matter, even with the higher threshold. The threshold change doesn’t mean you stop collecting W-9s from contractors. You still need them for anyone you might pay $2,000 or more in a year, and you won’t always know upfront who that will be. Get the W-9 before the first payment. It’s much harder to chase one down after the fact.

E-filing is now required for most businesses. If your business files 10 or more information returns of any type in a year, you’re now required to e-file. The old threshold was 250 returns, so this catches a lot more businesses than before. If you’ve been mailing paper 1099s, that may no longer be an option.

What to do right now

For 2025 payments, nothing changes. File 1099s in January 2026 using the $600 threshold as usual.

For 2026, update your tracking. Make sure your bookkeeper or accounting system knows the threshold is now $2,000. And keep collecting W-9s from contractors before their first payment — that habit doesn’t change.

If you’re not sure whether your current bookkeeping setup is tracking this correctly, that’s worth a conversation. These changes are easy to miss when nobody’s watching your books closely month by month.

The bottom line

The 1099 threshold change is genuinely good news for small businesses — less paperwork, fewer forms, fewer chances to miss someone at the low end. But “less paperwork” only works if you know the new rules and your systems reflect them. Otherwise you’re either over-filing out of habit or under-filing because nobody updated the threshold.

At Solvency Now, our mission statement is complete and perfect financial records for business owners’ peace of mind. That includes making sure your 1099s go out correctly, on time, under the right rules — every year, not just when the rules happen to stay the same.

Not sure if your 1099 process is ready for the new rules?
Schedule a free 15-minute consultation. We’ll tell you exactly where you stand.

Sincerely,
Maya Weinreb | Founder & CEO
813-336-1574

 

Frequently Asked Questions

What is the new 1099 reporting threshold for contractors?

Beginning with payments made in 2026, businesses generally only need to issue a 1099-NEC or certain 1099-MISC forms when total annual payments to a contractor reach $2,000 or more, replacing the long-standing $600 threshold.

Does the new $2,000 threshold apply to 2025 payments?

No. Payments made during 2025 are still subject to the $600 reporting threshold. The new $2,000 threshold applies to payments made in 2026 and reported in January 2027.

Should I still collect a W-9 from independent contractors?

Yes. It’s still best practice to obtain a completed W-9 before making the first payment. You may not know whether a contractor will exceed the reporting threshold during the year, and collecting the form upfront avoids delays later.

Has the 1099-K reporting threshold changed?

Yes. The reporting threshold for many third-party payment platforms has returned to $20,000 and 200 transactions, reducing the number of businesses that will receive a 1099-K.

Do businesses still have to e-file 1099 forms?

Many do. Businesses that file 10 or more information returns during the year are generally required to file electronically, making e-filing the standard for many small businesses.

How can I prepare for the new 1099 rules?

Review your bookkeeping system, update contractor payment tracking for the new threshold, continue collecting W-9 forms, and confirm that your bookkeeping or accounting provider is following the latest IRS reporting requirements.

What happens if I issue a 1099 using the old threshold?

Over-filing generally creates unnecessary paperwork rather than penalties, but relying on outdated rules can make your reporting process less efficient. Keeping your bookkeeping system updated helps ensure accurate compliance.

Why is it important to keep bookkeeping systems updated when tax rules change?

Tax reporting requirements can change from year to year. Regularly updating your bookkeeping processes helps reduce compliance risks, prevents filing errors, and ensures financial records remain accurate and current.