1099-NEC & 1099-MISC Reporting Threshold Rises to $2,000 Under OBBBA — What Payroll and AP Teams Must Update Now
OBBBA Section 70433 more than triples the long-standing $600 threshold to $2,000 for payments made from January 1, 2026. Backup withholding follows the same new floor. Here is what changes, what stays the same, and what your systems need to reflect.
⚡Key Takeaways for Payroll Professionals
- The 1099-NEC and 1099-MISC threshold rises to $2,000 for all payments made from January 1, 2026. Forms filed in 2027 reflect the new floor.
- Backup withholding trigger also rises to $2,000 — but collecting W-9s at onboarding before the first payment remains best practice.
- Income below $2,000 is still taxable for the recipient. The change affects the payer's reporting obligation only.
- The $2,000 threshold is indexed for inflation starting 2027. Monitor IRS fall announcements each year.
- Update AP and payroll system thresholds now — many default to $600 and will not auto-update.
What Changed and When
For decades, businesses were required to issue Form 1099-NEC or Form 1099-MISC whenever they paid $600 or more to a nonemployee for services or certain other payments in a calendar year. The One Big Beautiful Bill Act (OBBBA), enacted July 2025, changed that threshold effective January 1, 2026. For all payments made on or after that date, the reporting floor is now $2,000 per payee per calendar year.
The change is prospective. Payments made in 2025 and earlier still follow the $600 threshold for forms filed in early 2026. The new $2,000 threshold applies exclusively to 2026 payment activity — the 1099 forms issued in January–February 2027.
📋 1099 Reporting Threshold — Before and After OBBBA
OBBBA §70433 · IRS.gov
| Form | Threshold (payments made in 2025) | Threshold (payments made in 2026+) | Inflation-Indexed? |
|---|---|---|---|
| Form 1099-NEC (Nonemployee Compensation) | $600 | $2,000 | Yes — starting 2027 |
| Form 1099-MISC (Miscellaneous Income) | $600 | $2,000 | Yes — starting 2027 |
| Form 1099-K (Third-Party Network Transactions) | $2,500 (2025 IRS relief) | $20,000 & 200+ transactions reinstated | No change from OBBBA |
Income Below $2,000 Is Still Taxable — Just No Longer Reportable by the Payer
The new $2,000 threshold affects the payer’s obligation to file and issue an information return. It does not change the recipient’s obligation to report the income on their tax return. A contractor who receives $1,800 in 2026 from a single client will not receive a Form 1099-NEC, but must still include that $1,800 as taxable income on their Form 1040. Payers should communicate this clearly to contractors who may misunderstand the change.
Which Forms and Payment Types Are Affected
📌 Payment Types Covered by the New $2,000 Threshold
OBBBA §70433 · IRC §§6041, 6041A
| Payment Type | Form | New 2026 Threshold |
|---|---|---|
| Independent contractor / freelancer services | 1099-NEC | $2,000 |
| Rents paid to a landlord | 1099-MISC | $2,000 |
| Prizes and awards (non-employee) | 1099-MISC | $2,000 |
| Legal settlements and attorney fees | 1099-MISC | $2,000 |
| Interest income (1099-INT) | 1099-INT | Unchanged — still $10 |
| Dividend income (1099-DIV) | 1099-DIV | Unchanged — still $10 |
| Retirement distributions (1099-R) | 1099-R | Unchanged |
Backup Withholding Threshold Also Raised to $2,000
Backup withholding — the 24% flat withholding applied when a payee fails to provide a valid Taxpayer Identification Number (TIN) on Form W-9 — follows the same new $2,000 threshold. Prior to 2026, backup withholding was triggered once cumulative payments to a payee in the calendar year reached $600. Beginning January 1, 2026, the backup withholding obligation does not arise until cumulative payments reach $2,000.
W-9 Collection Best Practice Has Not Changed
Even though backup withholding is not triggered until $2,000, the best practice of collecting a valid Form W-9 from every new contractor before the first payment remains sound. A contractor who reaches $2,000 without a W-9 on file exposes the payer to immediate backup withholding liability on that payment. Build W-9 collection into your contractor onboarding process regardless of expected payment size.
What Did Not Change
Several aspects of 1099 reporting are unchanged by OBBBA and should not be confused with the threshold increase:
- Employee W-2 reporting: The W-2 threshold has not changed. Employers still issue W-2s for all wages paid regardless of amount.
- Corporation exception: Payments to C-corporations and S-corporations remain exempt from 1099-NEC/MISC reporting (with narrow exceptions for legal fees paid to attorneys).
- E-filing requirement: The 10-form aggregate e-filing threshold (across all information return types combined) is unchanged. Businesses filing 10 or more forms in total must file electronically.
- Payee income reporting obligation: Recipients must still report all income below $2,000 on their own returns.
Payroll and AP System Updates Required
The threshold change has direct implications for both accounts payable and payroll systems that manage contractor payments and year-end information returns:
⚙ System and Process Updates for 2026
OBBBA §70433 · 2026 compliance
| System / Process | Update Required |
|---|---|
| 1099 tracking threshold in AP/payroll system | Change accumulation threshold from $600 to $2,000 for 2026 payment year |
| Backup withholding trigger | Update to $2,000 (no W-9 withholding obligation below this level in 2026) |
| Contractor payment reports & dashboards | Update filter thresholds so year-end review flags payees at $2,000+ not $600+ |
| Year-end 1099 vendor review | Your 1099 software vendor may auto-update; verify before first run of 2026 |
| Inflation indexing (2027+) | The $2,000 threshold adjusts annually for inflation starting 2027; monitor IRS announcements each fall |
Action Checklist
1
Required · Now
Update the 1099 accumulation threshold in your AP and payroll systems to $2,000
Log into your accounts payable and payroll platforms and locate the 1099 tracking threshold setting. Update it from $600 to $2,000. If the system does not allow manual threshold adjustment, contact your vendor to confirm the update has been applied for 2026 payment tracking. Do this before any new contractor payments are processed in 2026.
2
Required · Now
Update backup withholding trigger threshold to $2,000
Confirm that your system will not trigger backup withholding until cumulative payments to a payee without a valid W-9 reach $2,000. However, continue collecting W-9s at onboarding before any payment is made — the best practice does not change with the threshold.
3
Best Practice
Communicate the change to contractors who previously received 1099s for amounts between $600 and $2,000
Contractors accustomed to receiving a 1099 for relatively small payments may be confused when they do not receive one in January 2027. A brief notice — especially for gig workers and occasional service providers in this range — can prevent unnecessary inquiries and reduce the contractor’s risk of omitting the income from their own return.
4
Monitor
Watch for the 2027 inflation-adjusted threshold announcement
Beginning with 2027 payments, the $2,000 threshold will be indexed for inflation annually. The IRS typically releases updated thresholds in October or November each year alongside other COLA announcements. Add this to your year-end compliance calendar.
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📎 Source & Attribution
“About Form 1099-NEC, Nonemployee Compensation”
This article represents independent analysis and editorial commentary by the einTime team, prepared for the benefit of payroll professionals. Content draws on publicly available regulatory documents and government publications. All compliance decisions should be verified against applicable regulatory guidance and reviewed with a qualified tax advisor or employment counsel.
ET
einTime Editorial Team
Payroll Compliance Analysts · einTime Resource Center
The einTime editorial team tracks federal, state, and local regulatory developments affecting payroll operations and translates regulatory complexity into practical guidance for payroll professionals.
📋 In This Article
📅 Key Deadlines
Jan1
$2,000 threshold applies to all 2026 payments from this date
Jan31
2027: 1099-NEC forms due for 2026 payments above $2,000
Feb28
2027: 1099-MISC paper deadline (Mar 31 for e-file)
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