The One, Big Beautiful Bill Act (OBBBA) contains a major overhaul to an outdated IRS requirement.
Beginning with payments made in 2026, the new law raises the threshold for information reporting on certain business payments from $600 to $2,000.
Beginning in 2027, the threshold amount will be adjusted for inflation.
The current requirement: $600 threshold
For decades, the IRS has required that businesses file Form 1099-NEC (previously 1099-MISC) for payments made to independent contractors that exceed $600 in a calendar year.
This threshold amount has remained unchanged since the 1950s!
The same $600 threshold is in place for Forms 1099-MISC, which businesses file for several types of payments, including prizes, rents and payments to attorneys.
Certain deadlines must be met.
- A Form 1099-NEC must be filed with the IRS by January 31 of the year following the year in which a payment was made.
- A copy must be sent to the recipient by the same January 31 deadline.
- A Form 1099-MISC must also be provided to a recipient by January 31 of the year following a payment, but unlike Form 1099-NEC, the 1099-MISC deadline for the IRS depends on how it’s submitted.
- If a business is filing the form on paper, the deadline is February 28. If the form is being submitted electronically, the deadline is March 31.
- The new rules raise the bar to $2,000 Under the OBBBA, the threshold increases to $2,000, meaning: Fewer 1099s will need to be issued and filed.
- There will be reduced paperwork and administrative overhead for small businesses. T
- here will be better alignment with inflation and modern economic realities.
- For example, let’s say your business engaged a freelance graphic designer and pays the individual $650 this year.
- You’ll need to send a 1099-NEC to the designer for calendar year 2025. But if you hire the same individual in 2026, you won’t be required to send a 1099 to the graphic designer or the IRS in 2027 unless the designer earns more than $2,000.
The money is still taxable income
- Even if an independent contractor doesn’t receive a 1099-NEC because the amount paid was below the threshold amount, the payment(s) are still considered part of the individual’s gross income.
- The contractor must report all business income received on his or her tax return, unless an exclusion applies. In addition, businesses must continue to maintain accurate records of all payments.
- There are changes to Form 1099-K, too The OBBBA also reinstates a higher threshold for Forms 1099-K, used by third-party payment processors.
- The reporting threshold returns to $20,000 and 200 transactions, rolling back the phased-in lower thresholds that had dropped toward $600 by 2026.
- This rollback undoes changes from the 2021 American Rescue Plan Act and earlier IRS delay plans.
- Simplicity and relief Raising the threshold will ease the filing burden for millions of businesses, especially small operations that rely on contractors.
- There will also be less risk that an IRS penalty will be imposed for failing to file a Form 1099 when required.
Contact us with any questions about the new rules or your filing requirements.