The 1099 Rules Changed for 2026. Here's What Small Business Owners Need to Do Before January 31
If you pay contractors, freelancers, or other businesses for services, January 31 is circled on your calendar whether you know it or not. That's the deadline to send 1099-NEC forms to your contractors and file them with the IRS.
The good news: for the first time in decades, the rules got easier.
The big change: $600 is now $2,000
For years, you had to issue a 1099-NEC to any contractor you paid $600 or more. Under the One Big Beautiful Bill Act, that threshold rose to $2,000 for payments made on or after January 1, 2026. Starting in 2027, the $2,000 will be adjusted each year for inflation.
So for the forms due January 31, 2027:
• Paid a contractor $2,000 or more in 2026: they need a 1099-NEC
• Paid a contractor less than $2,000 in 2026: generally no 1099-NEC required
One important note: this changes what you have to report, not what your contractor owes. They still have to report all of their income, 1099 or not.
Who needs a 1099-NEC (and who doesn't)
You generally need to send one to:
• Independent contractors and freelancers paid $2,000+ for services
• Sole proprietors and single-member LLCs paid $2,000+ for services
• Partnerships and most LLCs taxed as partnerships paid $2,000+ for services
• Attorneys: payments to attorneys follow special rules, so always check these with your tax professional
You generally don't need to send one for:
• Payments to C corporations and S corporations (with a few exceptions, like attorneys)
• Payments you made by credit card, debit card, or through apps like PayPal for business. Those are reported by the payment company on Form 1099-K, not by you
• Payments to employees (they get a W-2)
• Purchases of goods or merchandise
About 1099-K: payment apps and card processors only have to issue a 1099-K when someone receives more than $20,000 and more than 200 transactions in a year. That threshold was restored by the same law, so the lower $600 rule you may have heard about no longer applies.
Your November-December checklist
Don't wait until the last week of January. Start now and it's a two-hour job instead of a scramble.
• Pull a list of everyone you paid in 2026 who isn't an employee. Your bookkeeping software can run a vendor report.
• Flag anyone paid $2,000 or more by check, ACH, Zelle, or cash.
• Collect a W-9 from each one. You need their legal name, address, tax classification, and taxpayer ID. Ask now; chasing W-9s in January is the #1 cause of late filings.
• Check their tax classification. If the W-9 says C corporation or S corporation, you usually don't need a 1099 (attorneys are the exception).
• Separate card and app payments. Anything paid by credit card or a payment app doesn't go on your 1099-NEC.
• Make sure your books are reconciled through December 31 so your totals are right.
• File by January 31, 2027. That's the deadline both for sending copies to contractors and for filing with the IRS.
Common mistakes we see
• Using last year's $600 rule. You may be sending forms you no longer need to, or worse, assuming the change means you don't need W-9s at all. Keep collecting them.
• Missing taxpayer IDs. If a contractor never gave you a W-9, special backup withholding rules can still apply even under $2,000. Get the W-9 before you pay.
• Counting card payments twice. Those are the payment processor's job, not yours.
• Messy books. If expenses aren't categorized, you can't tell who you paid how much. That's when 1099 season becomes a cleanup project.
Need help?
Compliance On Demand prepares and files 1099s for small businesses nationwide, for $150 plus $15 per form, and our monthly bookkeeping clients go into January with their contractor totals already done. If your books aren't ready, we can bring them current first.
This post is general information, not tax advice. Check with your CPA about your specific situation.
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