1099-NEC Filing in 2026: New Thresholds, Who Gets One, and Common Mistakes

If you're a tax preparer reading this in April 2026, here's the immediate issue: you're finalizing 2025 returns under the old $600 1099 threshold, but in nine months your clients start making 2026 payments under a completely new rule. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, raised the 1099-NEC and 1099-MISC reporting threshold from $600 — where it had sat since the 1950s — to $2,000. It also restored the 1099-K threshold to $20,000 and 200 transactions, retroactive to 2022. And it added new form boxes for tips and overtime compensation.

This is the most consequential information-reporting change in decades. Most of your clients don't know about it yet. Some will hear about it in fragments and come to you asking the wrong questions ("Do I still need to send 1099s?"). Here's the complete picture — what changed, what didn't, what's effective when, and how to handle it at the write-up level.

The Immediate Timing Issue: 2025 vs. 2026

Everything downstream hinges on this distinction:

• 2025 tax year (returns being filed right now in early 2026): OLD rules. $600 threshold for 1099-NEC and 1099-MISC. The OBBBA change does not apply retroactively for these forms.
• 2026 tax year (payments made during calendar 2026, reported in early 2027): NEW rules. $2,000 threshold for 1099-NEC and 1099-MISC. This is when OBBBA's change kicks in.

Applying the wrong threshold costs you either way:

• Using $2,000 for 2025 payments: You miss required filings and face per-form penalties of $60–$340 (2026 inflation-adjusted) plus potential intentional disregard penalties.
• Using $600 for 2026 payments: You file forms that aren't required — not illegal, but you've wasted administrative hours and, if the forms contain errors, created unnecessary penalty exposure.

One exception to this timing rule: 1099-K thresholds reverted retroactively to 2022, so even for 2022–2024 returns the IRS confirmed in FS-2025-08 that the $20,000/200 rule applies and platforms aren't penalized for having issued forms under the lower transitional thresholds.

1099-NEC Threshold: The $2,000 Change Explained

Under Section 70433 of OBBBA, the reporting threshold for Form 1099-NEC (nonemployee compensation) and Form 1099-MISC increases from $600 to $2,000 for payments made on or after January 1, 2026.

What this means in practice:

Starting in 2026, a business needs to file a 1099-NEC for a contractor only if aggregate payments in a calendar year reach $2,000 or more. A freelancer who earns $1,800 from a single client in 2026 no longer gets a 1099 from that client. One who earns $2,000 does.

What stayed the same:

• Filing deadline: January 31 of the following year (to both recipient AND IRS) — no automatic extensions
• Who must file: any business or self-employed person paying for services in the course of a trade or business
• Who doesn't get one: employees (they get W-2s), corporations (with exceptions — see below), and payments not for services
• Attorney payments: always reportable, regardless of entity type
• Medical/healthcare payments: always reportable on 1099-MISC Box 6, regardless of entity type

Inflation indexing kicks in starting 2027. The threshold will adjust annually based on the CPI, rounded in $100 increments. The IRS will announce each year's threshold in fall of the prior year.

Backup withholding threshold also rises to $2,000. Under IRC §3406, if a contractor fails to provide a valid TIN, the payer must withhold 24% of gross payments. Starting 2026, that withholding trigger aligns with the new $2,000 threshold.

The Before/After Table

Form	2025 threshold (filing now)	2026 threshold (filing in 2027)
1099-NEC	$600	$2,000
1099-MISC (rents, prizes, settlements)	$600	$2,000
1099-MISC Box 6 (medical/healthcare to corp)	$600	$2,000
1099-MISC Box 10 (attorney gross proceeds)	$0 (any amount)	$0 (any amount — unchanged)
1099-K (TPSO)	$20,000 AND 200 transactions	$20,000 AND 200 transactions
1099-K (payment card)	$0 (any amount)	$0 (any amount — unchanged)
Backup withholding trigger	$600	$2,000

1099-K: The $20,000 / 200 Transaction Reversion

Separate from the 1099-NEC/MISC change, OBBBA Section 70432 also rewrote the 1099-K rules — and this one applies retroactively to tax years beginning after December 31, 2021.

The history: The American Rescue Plan Act of 2021 (ARPA) had lowered the 1099-K threshold from $20,000/200 transactions to just $600 with no transaction minimum. The IRS delayed implementation three times — setting transitional thresholds of $5,000 for 2024 and $2,500 for 2025 — before OBBBA killed the lower threshold entirely.

The new/restored rule: A Third Party Settlement Organization (TPSO) must issue a 1099-K only if a payee receives payments totaling over $20,000 AND more than 200 transactions in a calendar year. Both conditions must be met.

This rule was retroactively applied to 2022 forward, per IRS FS-2025-08 (updated October 23, 2025). Platforms that filed under the lower ARPA thresholds don't need to amend or withdraw those filings.

The distinction preparers must understand — and that most clients don't:

Third Party Settlement Organizations (TPSOs): Platforms that facilitate payments between unrelated parties — PayPal, Venmo (for goods/services), Etsy, eBay, Airbnb, Uber. These are subject to the $20,000/200 rule.

Merchant Acquiring Entities (payment card processors): Companies that process credit, debit, and stored-value card transactions — Visa, Mastercard, Square, Stripe, Shopify Payments. These have NO minimum threshold. Any payment processed triggers 1099-K reporting. A business that takes a single $5 credit card payment through Square should expect a 1099-K.

Clients routinely conflate these and assume "all payment platforms" are covered by the $20K/200 rule. They aren't. A small e-commerce business running $8,000 through Stripe gets a 1099-K for the full amount. The same business running $8,000 through PayPal doesn't.

What's NOT reportable on 1099-K: Payments marked as personal/friends-and-family on platforms like Venmo. However, the IRS has made clear that mislabeling business payments as personal to avoid reporting is tax evasion.

New Form Boxes for 2026: Tips and Overtime

The IRS released draft Forms 1099-NEC and 1099-MISC in late 2025 reflecting OBBBA's new tips and overtime deduction provisions. The changes to be aware of:

1099-NEC restructuring:

• Box 1a: Nonemployee compensation (moved from current Box 1)
• Box 1b: Qualified tips
• Box 1c: Qualified overtime (for qualifying workers)
• Box 1d: Reserved

1099-MISC restructuring:

• New Boxes 13a and 14: tips and overtime compensation

The tips and overtime boxes exist because OBBBA created above-the-line deductions for these income types. The payer isn't responsible for determining whether the tips or overtime qualify for the deduction — that's determined by the recipient on their individual return. The payer just reports the amounts paid in the correct boxes.

For most small Schedule C and sole proprietor clients, the tips and overtime boxes won't matter. They become relevant for tipped-industry clients (restaurants, salons, hospitality) and for businesses with independent contractors who receive tips or overtime-qualifying pay.

Who Gets a 1099-NEC (And Who Doesn't)

Generally gets a 1099-NEC for 2026+ ($2,000 threshold):

• Independent contractors and freelancers
• Attorneys for legal services (always — no threshold consideration)
• Sole proprietors providing services
• Partnerships providing services
• LLCs taxed as sole props or partnerships

Generally does NOT get a 1099-NEC (corporate exception):

• C-corporations
• S-corporations
• Generally exempt under IRC §6041A unless they fall into one of the exceptions below

Corporate exceptions — still reportable even if the payee is a corporation:

• Legal services (report on 1099-NEC Box 1a)
• Medical and healthcare payments (report on 1099-MISC Box 6)
• Fish purchases for cash (1099-MISC Box 11)
• Attorney settlements (1099-MISC Box 10 — gross proceeds paid to an attorney, regardless of attorney's entity type)
• Substitute payments in lieu of dividends or interest (1099-MISC Box 8)
• Federal executive agency payments for services

Practical application. A client pays $5,000 to an LLC for consulting services in 2026. The LLC is taxed as an S-corp. No 1099-NEC required — the S-corp election exempts them. A client pays $5,000 to a law firm organized as a PC (professional corporation) in 2026. 1099-NEC required — legal services are reportable regardless of entity type.

The W-9 is the key. Box 3 of Form W-9 tells you the payee's federal tax classification — sole proprietor, partnership, S-corp, C-corp, LLC, etc. That's how you determine whether the corporate exception applies.

Don't Stop Collecting W-9s

This is the point AP teams and small business owners get wrong. The $2,000 threshold affects when you must file a 1099 — not when you must collect a W-9.

Reasons to keep collecting W-9s from every vendor regardless of expected payment amount:

1. Annual totals are unpredictable. A client you expect to pay $1,500 in 2026 might end up getting $2,500 because of a year-end project. Without a W-9 on file, you can't issue the 1099 on January 31.

1. Backup withholding protection. Without a W-9, if you receive an IRS CP2100 notice flagging a TIN mismatch, you have no documentation that you requested correct tax information. That exposes you to per-incident penalties.

1. The threshold changes. The $2,000 threshold will adjust for inflation starting 2027. Future years may have different numbers. A W-9 policy tied to "whenever we think we'll pay over $X" will constantly break.

1. State compliance. Several states maintain their own lower thresholds (see next section).

The correct policy remains: "No W-9, no payment." Collect it at vendor onboarding before the first dollar goes out. Use the IRS TIN Matching service (free for authorized users) to verify the information matches IRS records before filing season.

State Conformity: The Landmine

Federal 1099 changes don't automatically change state requirements. Several states maintain reporting thresholds that are lower than the new federal $2,000 level:

• Massachusetts: $600 for 1099-MISC (regardless of federal changes)
• Vermont: Lower thresholds for various 1099s
• Rhode Island: $100 threshold for certain 1099-Ks
• Maryland: $600 for 1099-K
• New Jersey: $1,000 for 1099-K
• Oregon, Illinois, Iowa: Various lower thresholds

This means:

• A business in Massachusetts paying a contractor $1,200 in 2026 has no federal 1099-NEC obligation but may have a Massachusetts state obligation to file a 1099-MISC.
• Multi-state businesses face the most complexity, especially if they use the Combined Federal/State Filing Program for some states but not others.
• A few states (notably Florida and Tennessee) don't participate in the Combined Federal/State Filing Program at all, requiring separate direct filing.

Always verify state requirements. The federal number is the starting point, not the ending point. Check every state where your client has contractors or makes payments.

E-Filing Mandate: Still a 10-Form Aggregate

Separate from the threshold change: the IRS e-filing mandate applies when a business files 10 or more information returns in aggregate across all form types. This counts W-2s, 1099s (all types), 1094s/1095s, and others.

For a small business that previously filed 12 1099-NECs at $600 each, the OBBBA threshold change might reduce them to only 4 or 5 forms — dropping them below the e-filing mandate. That's a legitimate administrative benefit.

But the calculation is always aggregate across all information returns. A business with 3 W-2 employees and 7 1099-NEC recipients (total: 10) hits the e-filing mandate even if no single form type has 10 filings.

Common Mistakes in the 2025-to-2026 Transition

1. Applying the $2,000 threshold to 2025 payments. Everyone's reading about OBBBA and assuming the change is already in effect. It isn't for 2025 returns — you're filing under $600 rules right now.

2. Skipping W-9 collection because "most payments won't exceed $2,000." Year-end projects, scope changes, and additional work can push totals across the threshold unexpectedly. Without a W-9, you can't issue the 1099 on time.

3. Confusing 1099-K TPSO rules with payment card rules. TPSO: $20K/200. Payment card processor: no minimum. Different rules, different forms, same number but different triggers.

4. Assuming corporations never need 1099s. Attorneys, medical providers, and fish sellers always do. The corporate exception isn't absolute.

5. Ignoring state conformity. Massachusetts, Vermont, and several others maintain lower thresholds. Federal relief doesn't mean state relief.

6. Thinking the 1099-K retroactive change requires amendments. IRS FS-2025-08 confirmed platforms that filed under lower 2024 thresholds don't need to amend or withdraw. But recipients should still report all taxable income regardless of what 1099-Ks they received.

7. Missing the January 31 deadline for 1099-NEC. Unlike 1099-MISC (which has a February 28 / March 31 filing deadline to IRS), 1099-NEC is due to both the recipient and the IRS by January 31, with no automatic extensions. The penalty structure is aggressive.

8. Filing unnecessary 1099s "to be safe." A 1099 filed when not required still creates administrative burden, potential TIN mismatch notices, and recipient confusion. File what's required, not what's defensive.

9. Conflating 1099 filing obligations with income reporting obligations. Even if no 1099 is issued, the income is still taxable. A contractor paid $1,800 in 2026 still reports $1,800 on Schedule C, even without receiving a 1099.

10. Attorney gross proceeds vs. attorney legal services. Box 10 of 1099-MISC reports gross proceeds paid to an attorney as part of a settlement (always reportable, no threshold). Box 1a of 1099-NEC reports legal fees paid to an attorney for services (threshold applies — $600 for 2025, $2,000 for 2026). Different box, different rule.

What Tax Preparers See on Bank Statements

From a write-up perspective, the 1099 threshold change affects how preparers identify which vendor payments become potential reporting events for clients.

Vendor payment transactions to flag for 1099 consideration:

• Any recurring payment to an individual (possible contractor)
• Payments labeled with vendor memos ("consulting," "services," "freelance")
• Payments to attorneys, accountants, medical providers
• Payments via Zelle, ACH, checks, or business debit cards to unincorporated payees
• Payments that appear to be for services rather than goods

The $2,000 threshold matters at write-up level for two reasons:

1. Aggregation tracking. A single $400 payment doesn't matter. Five quarterly payments of $400 each do — they aggregate to $2,000 and trigger 1099-NEC. The categorization tool needs to aggregate across the year by vendor, not evaluate transactions individually.

1. Vendor identity resolution. "Jim Smith Consulting LLC" and "Jim Smith" and "James Smith" may all be the same payee. Fuzzy matching across vendor name variants is critical for correct aggregation — and for ensuring that the preparer, at year-end, has accurate 1099 candidate lists.

Transactions that don't trigger 1099s (and shouldn't be flagged):

• Payments to C-corps or S-corps (via W-9 classification — except legal/medical exceptions)
• Payments for goods, not services
• Payments to employees (W-2s, not 1099s)
• Payments through payment card processors (those are 1099-K'd by the processor, not the payer)
• Payments through TPSOs below $20K/200 (again, responsibility of the TPSO, not the payer)
• Reimbursements for documented business expenses
• Personal (non-business) payments

This is why a categorization tool designed for write-up work needs to do more than drop transactions on P&L lines. It needs to aggregate vendor payments across the year, cross-reference against W-9 classifications, apply the corporate exception logic, apply the legal/medical exception logic on top of that, and surface 1099 candidates to the preparer as the year-end approaches. WriteupOS handles this automatically — vendor payment transactions are tracked, aggregated, and flagged for 1099 review based on the applicable threshold for the tax year.

Decision Framework for 2026 Filing Season (and Beyond)

When a client asks about 1099 reporting in 2026:

1. Which tax year's payments? 2025 payments use $600. 2026 payments use $2,000.
2. Who's the payee? Individual or disregarded entity → 1099-NEC candidate. Corporation → generally exempt (except attorneys, medical, fish).
3. What's the payment for? Services → 1099-NEC. Rent, prizes, royalties, legal settlements → 1099-MISC. Goods → no 1099.
4. Do you have a W-9 on file? If no, get one before making the next payment. Don't rely on memory of payee's classification.
5. Aggregate the full year. One $1,800 payment is under threshold. Two $1,200 payments are over.
6. State check. Does the client's state have a lower threshold? If yes, federal and state obligations may diverge.
7. E-filing threshold. Does the client file 10+ total information returns this year (all types aggregated)? If yes, e-filing is mandatory.
8. Deadline. 1099-NEC to recipient AND IRS by January 31. No automatic extensions.

The Bottom Line for 2026

The OBBBA 1099 changes are substantial paperwork relief for small businesses — but only if preparers get the timing right. The $2,000 threshold doesn't apply to the 2025 returns you're filing right now. It applies to 2026 payments, reported in January 2027.

Between now and January 2027, clients will be making payment decisions under the new threshold. Your job is to keep tracking those payments at the vendor level throughout the year, because at year-end, you'll need a clean aggregated list of every payee who crossed $2,000. The $600 rule that's been in place since the 1950s is gone. The new rule is written. The preparers who adapt their tracking in 2026 will be ready for the January 2027 rush. The ones who wait until December will be rebuilding vendor payment histories from scratch.

For 1099-K, the $20,000/200 threshold is back — and it's retroactive to 2022. Clients who received 1099-Ks under the lower transitional thresholds don't need amendments, but their underlying income obligation is unchanged. All taxable income gets reported on the return, with or without a 1099.

The write-up discipline for 2026 is clear: categorize every vendor payment, aggregate across the year by payee, cross-reference against W-9 data, and flag any payee whose aggregate approaches the threshold. The threshold numbers changed. The fundamental preparer workflow didn't.