1099 Changes for 2026: What Small Business Owners Need to Know
Every January, small business owners scramble to send 1099s to the contractors they paid. Recent federal tax law changed the rules, so the checklist you used last year may not match this year. Here is what to know before January 31.
1. The 1099-NEC and 1099-MISC threshold went up
For years, you had to send a Form 1099-NEC to any contractor you paid $600 or more for services in a year. Under the 2025 federal tax law, that threshold rises to $2,000 for payments made after December 31, 2025, and it is scheduled to adjust for inflation in later years. The same change applies to most 1099-MISC payments, such as rent. That means fewer forms for small payments, starting with the forms you will file in early 2027 for 2026 payments.
For 2025 payments (the forms due January 31, 2026), the old $600 threshold still applies.
2. The 1099-K threshold went back to $20,000 and 200 transactions
Payment apps and card processors send Form 1099-K. After several years of planned reductions, the law restored the federal threshold to more than $20,000 and more than 200 transactions. Some states use lower thresholds, so you may still receive a 1099-K for less.
3. Your income is taxable either way
A higher threshold changes who has to send a form, not what is taxable. Freelancers and side-business owners must still report all of their business income, whether or not a 1099 arrives. Keep your own records of every payment you receive.
4. Collect W-9s before you pay
The easiest way to stay out of trouble is to get a Form W-9 from every contractor before the first payment. It gives you their legal name, tax classification and taxpayer ID. If a contractor will not provide a W-9, you may be required to apply backup withholding.
5. Payments that usually do not need a 1099
Payments to corporations (with some exceptions, such as attorneys' fees)
Payments made by credit card or through a payment app, which are reported by the processor on a 1099-K instead
Payments for merchandise or personal, non-business purposes
6. Deadlines
Form 1099-NEC is due to both the contractor and the IRS by January 31. Penalties for late or missing forms add up quickly and increase the longer you wait, so file on time even if you have to correct a form later.
Bottom line
For 2025 payments, keep using the $600 rule. For 2026 payments, the threshold is $2,000. Either way, get W-9s up front, track every contractor payment in your books, and remember that income is taxable whether or not a form shows up.
This article is general information, not tax advice for your specific situation. Thresholds can change; confirm current amounts on IRS.gov.
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