Tax laws shape how businesses pay workers and report payments to the IRS, and recent changes to 1099 reporting thresholds have left some business owners and contractors unsure of the rules.
What you’ll learn
What you’ll learn
This article is authored by OnPay, a top-rated payroll provider for small businesses with more than 30 years of experience in payroll, taxes, and small business compliance.
Key takeaways
- The 1099-MISC and 1099-NEC reporting threshold rises from $600 to $2,000 for payments made starting in 2026, reducing paperwork required for small-scale transactions.
- The 1099-K threshold reverts to $20,000 and more than 200 transactions, applied retroactively to 2022.
- All income remains taxable regardless of reporting requirements – businesses and contractors must still track and report earnings below these amounts.
The passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, adds another layer of change to Form 1099 regulations. This article breaks down what the legislation means for 1099 filing, answers some common questions about the updated reporting limits, identifies affected tax forms, and covers the key effective dates.
What are 1099 tax reporting thresholds
A 1099 reporting threshold is the minimum dollar amount that triggers the requirement to file a 1099 form with the IRS. When payments to a person or business reach this limit during a calendar year, the payer must send a 1099 form documenting the payment to the recipient, with a copy going to the IRS.
Is all income taxable?
A 1099 form is an information return designed to inform both the IRS and the recipient of potential taxable income. But not receiving a 1099 doesn’t mean the income is tax-free.
Taxpayers must report all income on their federal income tax returns, including amounts below the 1099 reporting threshold. For example, if a contractor receives $1,500 from a client in 2026, and the 1099 reporting threshold is $2,000, the client doesn’t have to send the contractor a 1099, but the contractor still has to report and pay tax on that $1,500.
What changed for 1099 reporting under the One Big Beautiful Bill Act
This legislation changes the 1099 reporting landscape for businesses and payees in a few key ways.
First, the law raises the reporting threshold for Form 1099-MISC and Form 1099-NEC from $600 to $2,000, starting with payments made in 2026. Beginning with the 2026 tax year, payers only need to report payments to non-employees if the total reaches $2,000 or more in a calendar year. The IRS will adjust the new threshold for inflation each year, starting in 2027.
Second, the OBBBA reverts the Form 1099-K reporting threshold to its pre-2022 level: $20,000 in total payments and more than 200 transactions. This change is retroactive, applying as far back as 2022, and replaces the lower $2,500 and $600 thresholds scheduled to phase in for 2025 and 2026.
Together, these changes reduce the number of 1099 forms businesses need to issue for small-scale payments. That said, all income is taxable, even if you don’t receive a 1099.
The One Big Beautiful Bill Act made the following changes:
- The 1099-MISC and 1099-NEC threshold rises from $600 to $2,00, starting with 2026 payments
- The 1099-K threshold reverts to $20,000 and 200 transactions, replacing the $2,500 and $600 minimums planned for 2025 and 2026
- The backup withholding threshold rises to $2,000, aligned with the new 1099-MISC and 1099-NEC threshold
Key terms to know
Backup withholding: A required 24% withholding of income tax on certain payments if the person receiving payment doesn’t provide a correct taxpayer identification number. Businesses that skip collecting Form W-9 risk having to withhold and remit this amount themselves.
Third-party organizations: Companies that process payments between buyers and sellers, such as PayPal, Venmo, and credit card processors.
Non-employee compensation: Payments made to independent contractors or freelancers for services they provide.
Did you know?
The increase to the 1099-MISC and 1099-NEC threshold is the first since 1954, updating reporting requirements to better reflect today’s economy.
Now, let’s look at how these changes affect the 1099 forms employers and contractors already know.
How the new thresholds affect different 1099 forms
The OBBBA affects 1099 requirements differently depending on the form. The table below shows the old and new thresholds for the main forms impacted by the law.
| Form type | Old threshold | New threshold | Effective date |
| 1099-MISC | $600 | $2,000 | Tax year 2026 |
| 1099-NEC | $600 | $2,000 | Tax year 2026 |
| 1099-K | $2,500 for 2025 (never implemented) and $600 for 2026 (never implemented) | $20,000 + 200 transactions | Retroactive to 2022 (for unfiled forms) |
Because the 1099-K change is retroactive, companies that already issued forms under the lower, since-repealed thresholds don’t need to amend or withdraw them.
The IRS released updated versions of Forms 1099-NEC and 1099-MISC to reflect the new reporting requirements under the OBBBA. These versions show how the IRS plans to track new data points for the 2026 tax year:
New 1099 layouts for 2026
- New boxes for tips and overtime: Both forms include new boxes for reporting cash tips and overtime compensation (Boxes 1b–1d on the 1099-NEC; 13a–14 on the 1099-MISC)
- Shifted compensation boxes: To make room for these additions, nonemployee compensation on the 1099-NEC moves from Box 1 to Box 1a
- Simplified layout: The new forms break the payer’s name and address section into separate boxes for easier reading
You can view the new versions here:
You can view the full draft versions here:
As soon as the IRS makes them official, we’ll share the final versions and more details.
Below is the information each form reports.
Businesses issue Form 1099-NEC for independent contractor payments, while payment processors issue Form 1099-K. That means the same income can show up on different forms depending on the payment type.
- Form 1099-MISC: Reports miscellaneous income, such as rent, prizes, awards, and legal settlements
- Form 1099-NEC: Reports non-employee compensation for contractors and freelancers
- Form 1099-K: Reports payment card and third-party network transactions from companies like PayPal, Venmo, and credit card processors
“If you paid rent, independent contractor fees, or other transactions by credit card, debit card, or through a third-party network like PayPal or Venmo, you don’t need to issue a 1099-NEC or 1099-MISC for that payment. The payment processor already reports it on Form 1099-K. Double-reporting it on a 1099-NEC or 1099-MISC overstates the payee’s income. This rule applies regardless of the dollar amount.”
— Janet Berry-Johnson, CPA and OnPay Contributor
Zelle is the exception. Zelle isn’t classified as a third-party settlement organization, since it moves money directly between bank accounts rather than settling transactions itself. That means Zelle never issues a 1099-K, and payments made through it don’t get this exclusion. If you pay a contractor $2,000 or more through Zelle, you still need to issue a 1099-NEC or 1099-MISC, just as if you’d paid via check or direct deposit.
Did you know?
There are other types of 1099 forms, such as 1099-DIV for dividends and 1099-INT for interest, that are not impacted by the OBBBA.
Quiz yourself on the new 1099-NEC reporting threshold
Question 1: What is the new 1099-NEC reporting threshold starting in the 2026 tax year?
Question 2: If you pay a contractor $1,500 in 2026, do they still have to pay taxes on that income?
Question 3: What are the updated reporting requirements for Form 1099-K (payments via third-party processors like PayPal or Venmo)?
Question 4: Which 1099 threshold will be automatically adjusted for inflation starting in 2027?
Below are your quiz results, and how you did!
When do these changes take effect?
The timeline for these changes unfolds over several tax years.
2025
The current $600 threshold is in effect for 1099-MISC and 1099-NEC. The 1099-K threshold reverts to $20,000 and 200 transactions.
2026
The new $2,000 reporting threshold begins for both 1099-MISC and 1099-NEC. The backup withholding threshold also rises to $2,000. The 1099-K threshold remains at $20,000 and 200 transactions.
2027 and beyond
The 1099-MISC and 1099-NEC threshold becomes inflation-adjusted annually. The 1099-K threshold remains at $20,000 and 200 transactions and the IRS won’t adjust it for inflation.
You can also use the visual below to keep track of these threshold updates.
Understanding the 1099-K threshold changes
Form 1099-K, which reports credit card transactions and those taking place on third-party payment networks like PayPal, Venmo, and Cash App, has been on a bit of a roller-coaster ride when it comes to reporting rules.
Currently, third-party settlement organizations only have to issue a 1099-K if a payee’s total payments exceed $20,000 and their transactions exceed 200 in a calendar year.
But here’s the history if you want the full picture:
From 2011 to 2023, the reporting threshold for Form 1099-K held steady at $20,000 in payments and more than 200 transactions in a year. The American Rescue Plan Act, passed in 2021, changed that by removing the transaction count and lowering the threshold to $600, originally set to take effect for the 2022 tax year.
The IRS delayed that lower threshold three separate times. It first postponed the change and kept the $20,000/200-transaction threshold in place for 2022, then delayed it again for 2023 while introducing a phased approach:
- $5,000 for 2024
- $2,500 for 2025
- $600 for 2026 and beyond
The One Big Beautiful Bill Act overruled all this and retroactively restored the original reporting threshold before the $600 threshold ever took effect.
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How inflation impacts thresholds over time
Beginning in 2027, inflation indexing automatically increases the 1099-MISC and 1099-NEC reporting threshold each year. The IRS bases the adjustment on the Consumer Price Index and rounds to the nearest $100.
This keeps the threshold from going stale the way the old one did. The original $600 limit, set in 1954, remained unchanged for over seventy years. As inflation eroded the purchasing power of that $600, the reporting requirement applied to more payments of relatively small economic value.
With annual adjustments in place, the IRS will announce the updated threshold for the coming year each fall.
The IRS won’t update the 1099-K threshold of $20,000 and 200 transactions. Unless Congress changes the law, it stays fixed year over year.
Moving forward with the new requirements
The 1099 changes under the One Big Beautiful Bill Act should simplify compliance for businesses juggling multiple administrative tasks. They’ll need to issue fewer 1099 forms for small payments, freeing up time to focus on core operations.
That said, even with the less stringent reporting requirements, handling 1099 forms and other compensation-related tasks can take a lot of time. Modern payroll and accounting systems can automate your processes and ensure compliance with the ever-changing legislative environment. For businesses looking to streamline their payroll processes, OnPay offers access to tools you can try for 30 days.
Take a tour to see how easy payroll can be.
This article is authored by OnPay, a top-rated payroll provider for small businesses with more than 30 years of experience in payroll, taxes, and small business compliance.