The 1099 Threshold Just Tripled. Here's What That Means for You.

For decades the rule made January miserable. Pay anyone $600 or more for services during the year, and a 1099 was due at the end of the month. That $600 line was set generations ago and never adjusted, so it ended up catching almost every vendor a business used. That has now changed. For payments made in 2026 and later, the federal reporting threshold for Forms 1099-NEC and 1099-MISC is $2,000. It is one of the few recent tax changes that removes paperwork instead of adding it.

The change came in the 2025 federal tax law. It applies to most payments a business makes for services, plus most of what goes on Form 1099-MISC. Starting in 2027, the $2,000 figure will be adjusted for inflation each year, so it should not fall behind the way the old $600 rule did.

What actually changed and when

The timing is where people trip up. The forms you filed in early 2026 covered payments made during 2025, and they still used the $600 rule. The first filing season under the $2,000 threshold covers what you pay during 2026, with forms due at the start of 2027. The usual due date for Form 1099-NEC is January 31. Because January 31, 2027 falls on a Sunday, the deadline moves to the next business day.

That means the vendor totals that decide who gets a form next year are adding up right now. If you start tracking in December, you will be reconstructing a year of payments under deadline pressure.

Who still needs a 1099 at all

The new dollar amount only matters for payments that were reportable in the first place. Two questions decide that before you look at the total.

First, is the payment for services? The rule covers people doing work for your business: the bookkeeper, the designer, the IT contractor, the cleaning company, the consultant. Payments for goods, such as inventory, materials or equipment from a supplier, do not need a 1099 regardless of amount.

Second, how is the vendor set up? Payments to individuals, sole proprietors and most unincorporated businesses such as partnerships and LLCs taxed as partnerships are generally reportable. Payments to C corporations and S corporations generally are not, no matter how much you paid them.

There are two important exceptions to that corporate exemption. Payments to attorneys for legal services, and medical and health care payments, remain reportable even when the provider is incorporated. Gross proceeds paid to attorneys, for example in a settlement, follow their own reporting rules, so check how those apply before assuming the $2,000 figure covers them.

The confusion to clear up: 1099-NEC is not 1099-K

These two forms get mixed up constantly, including by software and by articles online. They report different things and are filed by different people.

The practical rule is simple. If you paid a contractor with a business credit card or through a payment platform, that payment does not go on your 1099-NEC. The platform may report it on a 1099-K. Reporting the same money again on your own form is one of the most common errors we see, and it leaves your contractor explaining double-counted income to the IRS.

A worked example

Here is an illustration. Say your business used 14 outside service providers in 2026. Four are incorporated, and none of those four are law firms or medical providers, so they drop out. Of the remaining ten, three were paid entirely by business credit card, so they drop out too. Of the last seven, four were paid less than $2,000 across the whole year.

Under the old $600 rule, you might have filed for most of those seven. Under the new rule you file three. The work did not disappear, though. You still had to know each vendor's entity type, how each was paid and what each was paid in total, which is why the setup habits matter more than the threshold itself.

What has not changed

A few things stay exactly the same, and each is worth knowing so a headline does not mislead you.

• + It is still a full-year total per vendor. A vendor at $1,900 in November can cross the line with one payment in December.
• + You should still collect a Form W-9 before the first payment. It gives you the vendor's taxpayer identification number and tells you their entity type.
• + If a vendor who needs a form will not give you a valid taxpayer identification number, backup withholding at 24% can apply to your payments to them.
• + Payments below the threshold are still deductible business expenses. The threshold decides what you report, not what you can deduct.
• + Other 1099 forms, such as those for interest and dividends, keep their own thresholds.

Do not forget your state

States set their own information reporting rules, and they do not automatically follow federal changes. Some states have kept lower thresholds for certain forms, and some require their own filings. California businesses should confirm how the state is treating the new federal threshold before skipping a form. The safest approach is to keep collecting the information as if you will need it, then decide at year end which forms are actually required federally and in each state where you file.

A simple year-end routine

A few minutes now saves hours in January:

• + Run a vendor payment report for the year to date and sort it by total paid
• + Flag each vendor's entity type and payment method from their W-9 and your records
• + Request missing W-9s now, before the holidays slow everyone down
• + Watch vendors close to $2,000, and remember attorneys and medical providers follow different rules
• + Confirm your filing method, as businesses filing 10 or more information returns in total are generally required to file electronically

Frequently asked questions

Do I send a 1099 to a contractor I paid $1,500 in 2026?

Under the federal rule, no, because $1,500 is below the $2,000 annual total. The payment is still fully deductible with normal business records. Check your state's rules as well, since they can differ.

Did the 1099-K threshold change too?

Yes, it went back up. After several years of planned reductions, the 1099-K threshold returned to more than $20,000 and more than 200 transactions. It is the payment platform's form, not yours, and it is not adjusted for inflation.

Do I still need W-9s from small vendors?

Yes. You will not know who crosses $2,000 until the year closes, and the W-9 is what tells you whether a vendor is a corporation, an attorney or an individual. Collecting it before the first payment is far easier than chasing it in January.

How Kelly+Partners can help

Our Advisors can review your vendor list before year end, confirm who needs a 1099 under the new federal rule and your state's rules, and set up a simple tracking process so January is routine. If your bookkeeping already runs through us, this becomes part of your year-end close. Book a discovery meeting.

This article is general information only and is not tax, legal or financial advice for your situation. Speak with a Kelly+Partners Advisor before acting on it.