Do I Need to Send a 1099 in 2026? The New $2,000 Threshold Explained
The $600 rule had been in place for decades. Starting with 2026 payments, the IRS raised the floor for the most common 1099s to $2,000. Beginning in 2027 the number will also adjust for inflation. For most growing businesses that means fewer forms in January. It does not mean less work in December. Here is what changed, what stayed the same, and what to do before year-end.
What exactly changed for 1099s in 2026?
The reporting threshold for nonemployee compensation rose from $600 to $2,000 per payee per calendar year. The IRS states it plainly in the current Instructions for Forms 1099-MISC and 1099-NEC: for tax years beginning after 2025, the minimum threshold "increased to $2,000 and may be adjusted for inflation beginning in calendar year 2027."
The same $2,000 floor now applies to several Form 1099-MISC boxes:
Rents
Prizes and awards
Medical and health care payments
Crop insurance proceeds
Two nonqualified deferred compensation boxes
The backup withholding threshold moved to $2,000 as well. That matters for when a missing W-9 becomes a real problem, which we cover below.
What did not change?
Some payment types kept their old thresholds. Watch these because they are easy to miss:
Gross proceeds paid to attorneys (1099-MISC box 10): still $600. This is the settlement-type payment, not the attorney's fee for services.
Royalties (1099-MISC box 2): still $10.
Direct sales of consumer products for resale: still $5,000.
Fishing boat proceeds: any amount.
Other rules stayed in place too. The 1099-NEC is still due to both the contractor and the IRS by January 31. For 2026 payments that date falls on a Sunday, so the deadline is Monday, February 1, 2027. If you file 10 or more information returns in total, you must still e-file. Payments to most corporations are still exempt, but attorneys' fees for services stay reportable even when the law firm is a corporation. Those fees now use the $2,000 threshold.
One more point owners get wrong: the contractor's income is still taxable whether or not they receive a 1099. The threshold only decides whether you have to report it.
How do the old and new rules compare?
Here is the side-by-side for the payments most service businesses make.
| Payment type | 2025 payments (filed early 2026) | 2026 payments (filed early 2027) |
|---|---|---|
| Contractors and freelancers (1099-NEC) | $600 | $2,000 |
| Attorney fees for services (1099-NEC) | $600 | $2,000 |
| Rent (1099-MISC) | $600 | $2,000 |
| Gross proceeds to attorneys (1099-MISC) | $600 | $600 |
| Royalties (1099-MISC) | $10 | $10 |
| Backup withholding trigger | $600 | $2,000 |
| Payments by credit card or PayPal/Stripe for business | Processor reports on 1099-K | Processor reports on 1099-K |
Does the $2,000 rule apply to payments I make this year?
Yes. It applies to payments made on or after January 1, 2026, which is everything you pay contractors this calendar year. The date you pay counts, not the date of the invoice. A December 2025 invoice you paid in January 2026 falls under the new $2,000 rule. A 2026 invoice paid in 2026 does too.
The 1099s you filed in January 2026 covered 2025 payments. Those still used $600. So if you remember filing at $600 this year, you did it right.
Do I still need a W-9 from every contractor?
Yes. Collect a W-9 before you pay any contractor anything. The higher threshold makes this more important, not less.
Here is why. You no longer know at onboarding which contractors will cross $2,000. A designer you hire for one $800 project often becomes a $6,000 contractor by November. Once a payee crosses the threshold without a valid taxpayer ID on file, backup withholding rules can require you to withhold 24% from future payments. Chasing a W-9 in January from a freelancer you stopped using in May is the worst version of this job. We covered the downside in our post on the risks of not collecting a W-9 from vendors.
The rule we use with our customers is simple. No W-9, no payment.
Do state 1099 rules follow the new federal threshold?
Not all of them. The federal law did not change state law. According to Thomson Reuters' May 2026 review of state reporting, Mississippi and Wisconsin were still at $600 for state filing. Missouri uses $1,200. Arkansas uses $2,500 when no state tax was withheld.
California businesses have a separate report to watch. The California EDD's independent contractor reporting rule (Form DE 542) still lists a $600 trigger and a 20-day deadline for payments to individual contractors. That report is about new-hire and child support tracking, not income tax. It runs on its own clock. If you pay contractors in more than one state, confirm each state's rule before you assume $2,000 works everywhere.
What should I do before year-end?
Use November and December to clean up vendor records so January is just filing. This is the same process our team runs for every customer:
Pull a 2026 payments-by-vendor report from your accounting system. Include every contractor, freelancer, landlord, and law firm.
Sort by total paid. Flag everyone at $2,000 or more, plus anyone close to it with December payments still coming.
Remove card and PayPal/Stripe business payments from your 1099 totals. The processor reports those on a 1099-K.
Check entity type on each W-9. Most corporations are exempt. Attorneys are not.
Request missing W-9s now, while the contractor still answers your emails.
Tag 1099 vendors in your accounting system so next year's report builds itself. We do this in Xero for our customers when a vendor is set up.
Confirm state rules for every state where you paid contractors.
Hand clean totals to your tax accountant or filing service in early January, well before the February 1 deadline.
If you want this built into a monthly routine rather than a January scramble, that is part of how we run accounts payable for our customers. Vendor setup, W-9 collection, and 1099 tagging happen when the bill comes in. Year-end becomes a review instead of a research project. Our post on how an accounting team streamlines 1099 prep walks through the hand-off.
Frequently asked questions
Is the 1099 threshold $600 or $2,000 for 2026?
For payments made in 2026, the federal threshold for Form 1099-NEC is $2,000 per contractor for the year. The $600 threshold applied to 2025 payments, which were reported in early 2026. Starting in 2027, the IRS may adjust the $2,000 figure for inflation.
Do I have to send a 1099 to a contractor I paid $1,500 in 2026?
Not under federal rules, as long as that is all you paid them for the year and the payment is a type covered by the $2,000 threshold. Check your state's rules, since a few states still use a lower number. Keep their W-9 on file either way.
When are 2026 Forms 1099-NEC due?
Forms 1099-NEC are due to recipients and the IRS by January 31. Because January 31, 2027 is a Sunday, the deadline for 2026 payments is Monday, February 1, 2027. If you file 10 or more information returns in total, you must file electronically.
Does the $2,000 threshold apply to attorneys?
Partly. Attorney fees for legal services go on Form 1099-NEC and now use the $2,000 threshold, even if the firm is a corporation. Gross proceeds paid to an attorney, such as a settlement payment, go on Form 1099-MISC and still use the $600 threshold.
Do I report contractors I paid by credit card or PayPal?
Generally, no. Payments made by credit card or through a payment network are reported by the processor on Form 1099-K. Leave those amounts out of your 1099-NEC totals.
Does the contractor still owe tax if they don't get a 1099?
Yes. The threshold decides whether you have to report the payment. It does not change whether the contractor owes tax on the income.
Not sure your vendor records would hold up at year-end? Our free Financial Operations Assessment takes a few minutes and shows where your accounting processes are solid and where they need work.
This article is for education, not tax advice. Basis 365 is not a CPA firm and does not provide tax services. Information reporting rules can depend on your entity, your payees, and your state. Talk to your tax accountant before making filing decisions.
Sources. IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026). Federal Register, Increase in Threshold for Requiring Information Reporting With Respect to Certain Payees (April 17, 2026). Thomson Reuters, State Tax Information Reporting: What Changed in 2025 and What to Expect for 2026. California EDD, Independent Contractor Reporting.
