Here's a number worth writing down: $2,000. Starting with payments made in 2026, that's the new bar a small business has to clear before it's required to send a contractor a Form 1099-NEC or 1099-MISC — up from the $600 threshold that had been frozen in place since 1954.
If you've spent years dutifully tracking every $650 invoice from a freelance designer or a $700 rent payment to a landlord just to hit an IRS filing deadline, this is a real, permanent change to how much of that paperwork you actually owe. But "you don't have to file the form" and "the payment doesn't matter" are two very different statements — and mixing them up is where small businesses get into trouble. Here's what actually changed, what didn't, and how to update your bookkeeping so you're not caught flat-footed in January 2027 when the first batch of forms under the new rule comes due.
What Changed, Specifically
The increase comes from Section 70433 of the One Big Beautiful Bill Act (OBBBA), signed into law in 2025. It amends two sections of the tax code — 6041(a) and 6041A(a)(2) — that set the reporting thresholds for:
- Form 1099-NEC — non-employee compensation, i.e., what you pay independent contractors and freelancers for services
- Form 1099-MISC — miscellaneous payments like rent, prizes and awards, legal settlements, and other non-wage income
Both forms shared the same $600 threshold since it was written into the tax code decades ago, with no inflation adjustment ever applied. OBBBA raises that floor to $2,000 for payments made in 2026, and — this is the part easy to miss — builds in annual inflation indexing starting in 2027, using 2025 as the base year and rounding to the nearest $100. So $2,000 isn't a new permanent number; it's a new permanent floor that will drift upward every year going forward, the way tax brackets already do.
Backup withholding, the mechanism that kicks in when a contractor doesn't provide a valid taxpayer ID, is now aligned to the same $2,000 trigger and will move with the same inflation index.
Filing obligations for 2026 payments arise in early 2027 (1099-NEC forms are due to recipients and the IRS by January 31 of the following year), so the first year you'll actually see the higher threshold in practice is the 2027 filing season — but the payments that count start accruing now, on January 1, 2026.
What Didn't Change
This is the part worth putting in bold in your own notes:
The income is still taxable, whether or not a 1099 gets filed. If you pay a contractor $1,500 for a project in 2026, you're no longer required to send them a 1099-NEC. That contractor is still legally required to report that $1,500 as income on their own tax return. The threshold determines your filing obligation as the payer — it has no bearing on the contractor's reporting obligation as the payee. A lot of confusion around 1099 thresholds comes from treating the form as the thing that makes income taxable, when it's really just an information return that helps the IRS cross-check what taxpayers report.
Some states set their own, lower thresholds. The $2,000 figure is a federal floor. A number of states require 1099 reporting at $600 or other levels regardless of what the IRS requires, particularly for state income tax withholding purposes. If you operate in a state with its own reporting regime, raising your internal threshold to match the federal $2,000 number could leave you out of compliance with state law even while you're perfectly compliant federally. Check your state revenue department's rules before you change any internal cutoffs.
The 1099-K threshold is a separate, unrelated change. If you've seen headlines about 1099-K thresholds bouncing between $600, $2,500, and $20,000 over the past few years, don't conflate that with this change. Form 1099-K is issued by third-party payment processors (PayPal, Venmo, Stripe, Square) to report payments they process on your behalf; OBBBA separately restored that threshold to $20,000 and 200 transactions. Form 1099-NEC/MISC is what you file when you pay a contractor directly. They're different forms, triggered by different parties, and this article is only about the latter.
Why the Change Happened
The $600 threshold had been fixed since the mid-20th century, and inflation alone means $600 in 1954 dollars is worth roughly $7,000 today. The practical effect was that nearly every contractor relationship — even a single afternoon of freelance work — technically triggered a filing requirement, generating enormous paperwork volume for small businesses and enormous processing volume for the IRS, much of it for genuinely immaterial payments. Raising the threshold and indexing it to inflation going forward is meant to concentrate 1099 reporting on payments substantial enough to matter, rather than every incidental transaction.
What to Actually Do Differently
Don't stop tracking payments under $2,000. This is the single biggest trap in this change. It's tempting to read "no filing required under $2,000" as "no need to record it," but you still need the expense in your books for your own deduction purposes, and your contractor still needs an accurate record of what you paid them, since they're responsible for reporting it. Keep tracking every contractor payment at full detail regardless of dollar amount — the threshold changes your filing obligation, not your bookkeeping discipline.
Keep collecting W-9s up front, before the first payment. Because you won't know in January whether a given contractor relationship will cross $2,000 by December, the only reliable practice is to collect a signed W-9 from every contractor before you pay them anything — the same rule that applied under the old $600 threshold, just with a higher stopping point. Waiting until a relationship crosses the threshold to ask for tax ID information means chasing down a contractor after the fact, sometimes after they've stopped responding to your emails entirely.
Update your accounting software's default threshold, but verify it against your state. Most accounting platforms flag contractors approaching the 1099 filing threshold so you know who needs a form at year-end. Check that your software has been updated to the new $2,000 federal figure for 2026 payments, and if you operate in a state with a separate lower threshold, make sure you're not relying on a single default that only reflects federal rules.
Reconcile per-contractor totals, not per-invoice amounts. The threshold is cumulative across the calendar year, not per payment. Five separate $500 payments to the same contractor add up to $2,500 — over the threshold — even though no single invoice looks like it matters. This is exactly the kind of thing that's easy to miss with informal tracking (a folder of PDFs, a spreadsheet someone forgets to update) and much harder to miss when every payment posts to the same ledger account tagged to that contractor.
Plan for the 2027 inflation adjustment before it happens. Because the threshold moves every year starting in 2027, "the 1099 threshold is $2,000" will stop being reliably true after one filing season. Build a habit of checking the current-year threshold each January rather than hardcoding $2,000 into a policy document or a piece of internal documentation that nobody revisits.
A Contractor's-Eye View
If you're on the receiving end of these payments rather than issuing them — a freelancer, a consultant, a landlord collecting rent from a small business tenant — the practical effect is that you'll likely receive fewer 1099s starting with the 2027 filing season, even though your total taxable income hasn't changed at all. Don't let a missing 1099 convince you that a client's payment "doesn't count." The IRS receives copies of every 1099 that is filed and cross-references them against your return, but the absence of a form for a given payment provides zero cover if that income should have been reported and wasn't. If anything, the higher threshold puts slightly more of the record-keeping burden on your side, since you can no longer lean on a stack of 1099s as your default income summary at tax time.
Keep Your Books Ready for Whatever the Threshold Does Next
Whether the 1099 filing threshold sits at $2,000 or drifts to $2,100 or $2,300 as inflation indexing kicks in, the underlying discipline doesn't change: every contractor payment needs to be recorded accurately, tied to the right person, and reconciled against what you actually paid over the year. Beancount.io gives you plain-text accounting that makes that kind of per-contractor, per-year tracking transparent and auditable — every payment lives in a ledger you fully control, not buried in a report generated by software you have to trust blindly. Get started for free and keep your contractor payments organized long before the next filing deadline arrives.