For more than 40 years, the rule for paying contractors was simple: pay someone $600 or more in a year and you owe them a Form 1099. That number is finally changing. Starting with payments made in 2026, the reporting threshold for most Forms 1099-NEC and 1099-MISC rises to $2,000.
That sounds like less paperwork, and for many small businesses it will be. But the change also creates new chances to get things wrong in January, especially for businesses that have always issued a 1099 to everyone out of habit. Here is what you need to know before filing season.
What changed
The federal tax law signed in July 2025 (often called the One Big Beautiful Bill Act) raised the information reporting threshold for payments to non-employees and certain other business payments from $600 to $2,000. The new threshold applies to payments made after December 31, 2025, which means the forms you file in early 2027 for the 2026 tax year are the first ones affected. Beginning in 2027, the $2,000 figure is scheduled to be adjusted for inflation each year.
In practice, this covers the forms most small businesses deal with:
- Form 1099-NEC for independent contractors, freelancers and other service providers who are not employees
- Form 1099-MISC for payments such as rent and certain other business income
The threshold for backup withholding was raised to match, so the $2,000 line also matters when a contractor has not given you a valid taxpayer identification number.
What did not change
A higher threshold is not a free pass. Several rules stay exactly the same:
- Contractors still owe tax on every dollar. A freelancer you paid $1,500 will not get a 1099 from you, but that income is still taxable to them. The threshold only changes what you are required to report.
- You still need a Form W-9. Collect a W-9 before you pay any new contractor. You often do not know at the start of a job whether the total for the year will cross $2,000, and chasing a contractor for their details in late January is stressful for everyone.
- Payments by card or payment app are reported differently. If you paid a contractor through a credit card or a third-party network, the payment processor handles the reporting on Form 1099-K, not you. Under the same 2025 law, those platforms report only when a payee receives more than $20,000 across more than 200 transactions.
- Payments to most corporations are still generally exempt, with long-standing exceptions such as legal and medical services. When in doubt, ask.
- Your own records still matter. To deduct what you paid contractors, you need invoices and proof of payment whether or not a 1099 was required.
Five steps to take before year-end
1. Run a contractor payment report for 2026
Pull every payment to non-employees from January 1 through today, grouped by payee. Sort the list into three groups: already over $2,000, close to $2,000, and well under. The middle group is the one to watch through December 31, because one more invoice can move someone over the line.
2. Check how each contractor was paid
Separate payments made by check, ACH or bank transfer from payments made by card or through payment apps. Only the first group counts toward your own 1099 filing. Mixing the two is one of the most common sources of incorrect 1099s.
3. Fill in missing W-9s now
For every contractor over or near $2,000, confirm you have a current W-9 with the correct legal name, address, tax classification and taxpayer identification number. If a contractor will not provide a TIN, talk to us about backup withholding before you make the next payment.
4. Update your accounting software
Many bookkeeping and payroll programs have the $600 threshold built in as a default setting. Check that your system is set to the new $2,000 threshold for 2026, and that contractors are mapped to the right 1099 box. A setting left on the old default can produce forms you are not required to file, or bury the ones you are.
5. Decide how you will file
If your business files 10 or more information returns in total (counting Forms W-2 and 1099 together), the IRS requires you to file them electronically. Many small employers hit that number without realizing it. If you withheld Maryland income tax on any contractor payments, those forms also need to be included in your annual Maryland withholding reconciliation.
Key dates for 2026 forms
- December 31, 2026: last day of payments that count toward the 2026 totals
- February 1, 2027: Forms 1099-NEC due to contractors and to the IRS, and Forms 1099-MISC due to recipients (January 31 falls on a Sunday)
- March 1, 2027: paper Forms 1099-MISC due to the IRS
- March 31, 2027: electronically filed Forms 1099-MISC due to the IRS
Note that there is no automatic extension for Form 1099-NEC. Late or incorrect forms can lead to penalties for each form, so it pays to have your list clean before January.
Should you still send 1099s under $2,000?
You may choose to, and some businesses do it so contractors have a clear record of what they were paid. There is nothing wrong with that, but it is extra work and extra filing for no legal requirement. For most small businesses, the better approach is to report what is required, keep good records for everything else, and give any contractor who asks a simple year-end payment statement.
Let us handle your year-end 1099s
New thresholds, a February 1 deadline and electronic filing rules make January a busy month for small business owners. HAMTOCK Consulting helps businesses in Silver Spring and across Montgomery County review contractor payments, collect missing W-9s, and prepare and file Forms 1099 and W-2 on time. If your books need catching up first, our accounting and bookkeeping team can get you current, and our payroll service covers year-end employer reporting from start to finish.
Book a consultation today: call us at 240-432-2749 or email contact@hamtock.com. We reply to consultation requests within one business day. For more on preparing for the new year, see our year-end tax planning checklist.
This article is general information, not tax advice for your specific situation. Rules are current as of October 2026; talk with us before acting.
