1099-NEC and 1099-MISC Thresholds for 2026: What CPAs Must Know After the OBBBA

The One Big Beautiful Bill Act (OBBBA) raised the reporting threshold for both Form 1099-NEC and Form 1099-MISC from $600 to $1,000, effective for payments made in calendar years beginning after December 31, 2025. For the 2026 tax year — the first year the new thresholds apply — businesses are not required to file a 1099-NEC or most 1099-MISC variants for payees who receive less than $1,000 in aggregate payments for the year. The royalties threshold under 1099-MISC remains at $10; that exception was not modified. For CPAs, the practical effect is a reduced information-return filing burden for clients with low-dollar independent contractor or vendor relationships, but the change also creates new reconciliation risks: the $600-to-$1,000 gap is a range where income is still taxable under IRC §61, still subject to backup withholding obligations if a TIN was never collected, and still likely to arrive through other information-return channels such as Form 1099-K. Updating client workflows now avoids both under-filing and over-filing errors.

What the OBBBA Changed — and What It Didn't

The statutory threshold for nonemployee compensation reporting under IRC §6041A and the general information-return threshold under IRC §6041 both move to $1,000 effective for payments made after December 31, 2025 (One Big Beautiful Bill Act, enacted 2025). The change applies to:

• Form 1099-NEC, Box 1 — Nonemployee Compensation: Payments to independent contractors, freelancers, attorneys for legal services, and other non-employees. The threshold rises from $600 to $1,000 per payee per year.
• Form 1099-MISC, most payment types: Rent (Box 1), prizes and awards (Box 3), fishing boat proceeds (Box 5), medical and health care payments (Box 6), and other income (Box 3). The threshold rises from $600 to $1,000.

What did not change:

• Royalties (1099-MISC, Box 2): The $10 threshold was not modified. Royalty payments of $10 or more still require a 1099-MISC.
• Direct sales of $5,000 or more (1099-MISC, Box 7): The $5,000 threshold for direct sales reporting was not affected.
• Crop insurance proceeds, substitute payments: Existing thresholds unchanged.
• Attorney gross proceeds (1099-MISC, Box 10): The $600 threshold for gross proceeds paid to an attorney — distinct from attorney fees reported on 1099-NEC — was not modified by the OBBBA. Gross proceeds to attorneys remain reportable at $600.

The elevated threshold does not change the underlying tax obligation. Every dollar of income, whether or not it generates a Form 1099, is taxable under IRC §61. Clients receiving $700 from a single contractor engagement in 2026 will not receive a 1099-NEC from the payor, but they still owe self-employment tax on that income and must report it on Schedule C.

1099-NEC vs 1099-MISC: Which Form Applies

The distinction between 1099-NEC and 1099-MISC is one of the most consistently mishandled areas in small-business information reporting, and the OBBBA threshold change is a useful moment to reinforce the correct logic with clients.

Use Form 1099-NEC when the payment is:

• Nonemployee compensation paid to an individual or unincorporated entity (sole proprietor, single-member LLC disregarded for tax purposes, partnership) for services rendered in the course of your trade or business
• At least $1,000 in aggregate for the calendar year to the same payee (2026 threshold)
• Made to someone who is not your employee — i.e., no withholding relationship exists

Common examples: bookkeeper paid on 1099 basis, freelance graphic designer, independent IT consultant, attorney fees for services (not gross proceeds).

Use Form 1099-MISC when the payment is:

• Rent paid to a non-corporation landlord of $1,000 or more
• Royalties of $10 or more
• Other income categories specified in the 1099-MISC instructions — prizes, awards, medical payments to non-employees
• Gross proceeds paid to an attorney of $600 or more (Box 10 — this threshold did not change)

Key exclusions that trip up clients:

• Payments to C-corporations and S-corporations are generally not reportable on 1099-NEC or 1099-MISC, with the exception of medical and health care payments and attorney fees/gross proceeds. A W-9 will confirm the payee's entity type.
• Credit card and third-party network payments — even for services — are not reportable on 1099-NEC. If a client pays a contractor via PayPal, Venmo Business, or a credit card, reporting falls to the payment processor under IRC §6050W on Form 1099-K. Filing a 1099-NEC for the same payment results in duplicate reporting; see our guide on 1099-K reporting threshold changes for how these overlap in 2026.
• Payments to employees — even for services outside the scope of employment — belong on Form W-2, not 1099-NEC.

Filing Deadlines for 2026 Returns (Due in Early 2027)

The deadline structure differs between 1099-NEC and 1099-MISC, and the distinction matters because 1099-NEC has one of the earliest deadlines in the information-return calendar:

Form 1099-NEC has an accelerated deadline because it was re-introduced as a standalone form in 2020 specifically to address the tax gap around nonemployee compensation — the IRS wanted earlier matching capability. Unlike most 1099 forms, there is no split between the recipient and IRS due dates for 1099-NEC; both are January 31.

Filers submitting 10 or more information returns in aggregate must file electronically under Treasury Regulation §301.6011-2, as revised by the Taxpayer First Act. Most clients with a meaningful contractor workforce will meet this threshold across their full information-return population.

Backup Withholding: The Obligation That Doesn't Move With the Threshold

Even with the elevated $1,000 threshold eliminating the Form 1099 filing obligation for certain payees, the backup withholding rules under IRC §3406 continue to apply whenever a payee fails to provide a valid TIN. The withholding rate is 24% of the payment, and the payor must remit it to the IRS regardless of whether the aggregate payment will ultimately exceed $1,000.

In practice, this means:

1. A client that pays a contractor $800 in 2026 has no 1099-NEC filing obligation, but must have a completed Form W-9 on file. If no W-9 was collected, backup withholding applies from the first dollar.
2. If backup withholding was required but not done, the payor — not the payee — is liable for the amount that should have been withheld, plus penalties.

The correct practice is to collect a W-9 from every vendor or contractor before issuing the first payment, regardless of anticipated annual volume. The threshold question is only relevant at year-end for filing purposes; it is never a reason to delay TIN collection.

Penalties for Information-Return Failures

The penalty structure under IRC §6721 (failure to file correct information returns) and IRC §6722 (failure to furnish correct payee statements) applies to 1099 filings. For 2026 returns, penalty tiers are indexed for inflation; the approximate current tiers are:

The maximum annual penalty for large businesses exceeds $3.7 million; the cap for small businesses (average annual gross receipts ≤ $5 million) is lower but still material. The intentional disregard penalty — assessed when a filer knowingly fails to file or intentionally files incorrect information — is $630 per return with no annual cap.

Clients who have been issuing 1099s inconsistently are more likely to face matching discrepancies and CP2000 notices. See our guide to responding to IRS CP2000 notices for the response process when an underreporting notice arrives.

How to Update W-9 and Threshold-Tracking Workflows for 2026

The OBBBA threshold change requires a deliberate workflow update, not just a threshold setting change in your tax software:

1. Update vendor onboarding checklists. The W-9 requirement does not change with the threshold. Every new vendor or contractor should complete a W-9 before or at first payment. The threshold change does not reduce the need for TIN collection — it only affects whether you file a 1099 at year-end.

2. Notify clients about the change in either direction. Some clients have been filing 1099-NECs at $600; those same clients may now under-file if they assume no filing is needed below $1,000 without realizing the royalties exception still applies at $10. A brief client alert reduces errors.

3. Reconcile the $600–$1,000 gap at year-end. Review all vendor payments in the $600–$999 range. These payments are:

• Not 1099-NEC reportable under the new threshold
• Still fully taxable income to the payee
• Still potentially 1099-K reportable if made through a third-party network
• Still subject to backup withholding if no W-9 on file

4. Re-examine attorney gross proceeds tracking separately. Attorney gross proceeds (1099-MISC Box 10) remain at $600. Clients who pay outside counsel must still file 1099-MISC for aggregate gross proceeds of $600 or more, even though the attorney fee threshold on 1099-NEC moved to $1,000.

5. Apply the correct form to the payment type. The threshold change did not restructure which payments belong on which form. The 1099-NEC / 1099-MISC classification logic described above remains unchanged; only the dollar trigger moved.

For clients with significant gig-economy or platform income, the interaction between the 1099-NEC threshold change and the 1099-K $600 threshold creates additional complexity. See our detailed walkthrough in how to handle gig economy tax reporting.

Recordkeeping for Information-Return Compliance

The IRS can assess penalties under IRC §6721 up to three years from the due date of the return. Clients should retain copies of all filed 1099s, transmitted W-9s, and proof of electronic filing acknowledgment for at least three years — and four years is prudent given potential for delayed IRS processing discoveries. Our document retention requirements guide covers the applicable periods for information returns alongside the broader business records calendar.

Frequently Asked Questions

Does the OBBBA threshold change apply to payments made in 2025 or only 2026?

The new $1,000 threshold applies to payments made in calendar years beginning after December 31, 2025 — meaning 2026 is the first year. For 2025 tax year returns (prepared in early 2026), the old $600 threshold still governed. Any 1099-NEC or 1099-MISC filed for 2025 payments should reflect the prior $600 rule.

Does the raised threshold eliminate the backup withholding obligation?

No. Backup withholding under IRC §3406 applies whenever a payee fails to provide a valid TIN, regardless of whether the payment amount is above or below the 1099 filing threshold. The withholding obligation attaches to the payment, not to the filing obligation.

If a contractor is paid $850 by check in 2026, must the business file a 1099-NEC?

No — $850 is below the new $1,000 threshold, so no 1099-NEC is required. However, if no W-9 was collected, backup withholding at 24% ($204) should have been withheld from that payment and remitted to the IRS. The contractor still owes income tax on the $850 regardless of whether a 1099 is issued.

Are payments to S-corporations reportable on 1099-NEC?

Generally no. Payments for services to S-corporations are exempt from 1099-NEC reporting under IRC §6041A. However, medical and health care payments and attorney fees/gross proceeds are exceptions — these remain reportable regardless of the payee's corporate status. Always confirm entity type via Form W-9 before deciding whether to file.

Can the same payment be reportable on both 1099-K and 1099-NEC?

No — a payment made through a third-party network or payment card is exclusively the reporting responsibility of the TPSO on Form 1099-K. The payor should not file a 1099-NEC for the same payment. Duplicate reporting triggers automated IRS matching errors. The practical solution is to ask contractors how they will be paid before issuing the first payment, and document whether a third-party network is involved.

What happens if a client filed 1099-NECs at $600 for 2026 payments — is that an error?

Filing at a lower threshold than required is not a penalty-triggering error — it results in additional information returns that are technically unnecessary but not incorrect. The IRS will process them normally. There is no obligation to correct or void 1099s filed below the statutory threshold.

Does the $1,000 threshold apply to all 1099-MISC boxes, or only some?

The OBBBA raised the general reporting threshold to $1,000, which applies to most 1099-MISC payment types. The royalties threshold (Box 2) remains at $10. Attorney gross proceeds (Box 10) remain at $600. Direct sales (Box 7) remain at $5,000. When in doubt, check the current IRS Instructions for Forms 1099-MISC and 1099-NEC (available at irs.gov/form1099misc) for the specific threshold applicable to each box.

How does the threshold change interact with audit risk?

The information-return filing requirement is one of the primary mechanisms through which the IRS identifies unreported income. Payors who previously filed 1099s at $600 will now stop filing between $600 and $999, which could leave some payees with no matching document at the IRS level. The income remains taxable and the IRS may still identify it through other channels — particularly 1099-K from payment processors. CPAs advising clients with contractor income in the $600–$999 range should reinforce that the threshold change affects reporting obligations for the payor, not taxability for the payee. See our guide to IRS audit triggers and defense for the broader matching and DIF-score context.

Arvori helps CPAs manage contractor compliance workflows, W-9 collection, and information-return preparation for business clients. To see how Arvori supports 1099 season, visit arvori.app.