The New $2,000 1099 Rule for 2026: What Business Owners Need to Know

The $600 minimum is finally getting updated. And frankly, it is about time. 

If you own a business, you have probably heard the $600 rule for years. Pay an independent contractor $600 or more during the year and, assuming the other requirements are met, you may need to issue a Form 1099-NEC.

What many business owners don't realize is just how old that number is.

The $600 reporting threshold dates back to 1954. Yes, 1954. And unlike so many other numbers in the tax code, it wasn't adjusted for inflation along the way.  

Beginning with payments made in 2026, the threshold finally increases from $600 to $2,000 for many of the payments commonly reported on Forms 1099-NEC and 1099-MISC.  

And after 2026, the threshold will actually be indexed for inflation. So hopefully we aren't still talking about a $2,000 threshold 70 years from now.

Why Business Owners Should Care About 1099 Reporting

I know issuing 1099s can feel like one more administrative burden of owning a business.

And it has a habit of sneaking up on you.

You get through year-end, enjoy the holidays, come back in January and suddenly someone reminds you:

"We need all of your contractor information so we can prepare your 1099s."

That's usually when the scrambling begins.

Who did we pay?

How much did we pay them?

Do we have their tax ID number?

Were they an LLC?

Was it an S corporation?

Did we pay them through PayPal?

What about Venmo?

Zelle?

Cash App?

And, of course, where is that W-9 they were supposed to send us eight months ago?

This is why 1099 reporting is something I prefer businesses to plan for throughout the year, rather than treat as a January project.

Because while preparing a 1099 may seem like a nuisance, it is still an IRS reporting requirement. Filing required information returns late or failing to file them can result in penalties. And there is another practical problem that doesn't get discussed nearly enough.

If you issue a contractor's 1099 late, they may have already filed their personal tax return.

Now your late filing may mean they have to amend their return, too.

Suddenly your January bookkeeping issue has become someone else's tax problem.

So yes, I am happy that the threshold is going up. But it is still important to understand who needs a 1099, when one is required, and what you should be collecting during the year.

The New $2,000 Threshold

For 2026, the threshold increases to $2,000 for many of the payments business owners encounter most often, including:

The material specifically identifies these categories as moving to $2,000.  

For most of my business-owner clients, contract labor is the big one.

If you pay an independent contractor $1,500 during 2026, you generally won't have the same Form 1099-NEC filing requirement that you would have had under the old $600 threshold.

Pay that same contractor $2,500 and now we need to look at issuing the 1099.

But don't take that to mean "all 1099s are now $2,000."

They aren't.

For example, royalties are still subject to a $10 threshold, and certain attorney-related payments continue to have different reporting rules.  

Tax rules rarely let us have a rule without giving us a few exceptions to go with it.

But What About PayPal, Venmo, Zelle and Cash App?

This is where I think business owners have had every right to be confused over the last several years.

There have essentially been two sets of reporting rules happening at the same time.

Forms 1099-NEC and 1099-MISC generally involve payments made directly by your business.

Form 1099-K involves certain payments processed through payment cards, payment apps and third-party settlement organizations.

And the 1099-K rules have changed, been delayed, changed again and generated more than their fair share of headlines.

Congress had previously lowered the Form 1099-K threshold for third-party payment networks to $600. The implementation was delayed and transitioned over several years. Then the OBBBA reversed that change and restored the prior threshold.

Under current law, third-party settlement organizations generally aren't required to issue a Form 1099-K unless business payments exceed $20,000 AND more than 200 transactions during the year.  

But here's the important piece for the business making the payment:

How you paid the vendor matters when determining whether you report the payment on Form 1099-NEC.

Payments processed through qualifying credit card and third-party payment networks are generally reported by the payment settlement entity on Form 1099-K rather than being duplicated by you on Form 1099-NEC.

That means your accounting team needs to know how the vendor was paid, not simply how much you paid them.

And Zelle deserves its own sentence.

Zelle generally operates as a bank-to-bank transfer network rather than a third-party settlement organization that issues Forms 1099-K. The IRS instructions specifically note that automated clearing houses don't qualify as TPSOs under the Form 1099-K rules.  

So don't automatically lump Zelle in with PayPal or Venmo when you're analyzing 1099 reporting.

Cash App can also depend on how the payment was processed and what type of account or transaction was involved, which is exactly why I don't recommend making your January 1099 determination based on the logo of the app.

Instead, keep good records of who was paid and how the payment was processed.

My Favorite Way to Avoid the January 1099 Scramble: Get the W-9 First

If you take only one practical tip from this article, make it this one:

Collect a Form W-9 from anyone you may need to report before you send them the first payment.

Not in January.

Not after they cross $2,000.

Not after they stop answering your emails.

Before you pay them.

A properly completed W-9 gives you the information you need to determine how that vendor should be reported, including their:

• Legal name
• Business name
• Federal tax classification
• Address
• Taxpayer identification number

You may not know when you hire someone whether you'll ultimately pay them $500 or $5,000 during the year.

That's okay.

Collect the W-9 anyway.

Then if they cross the reporting threshold, you already have the information you need.

This is one of those small administrative habits that can save you a lot of aggravation later.

QuickBooks Online Can Help With This

If you use QuickBooks Online, you don't necessarily have to email someone a blank W-9 and hope they eventually return it.

QuickBooks allows businesses to invite contractors to enter their W-9 information electronically.

I love this process for our bookkeeping and tax clients because it keeps the information connected to the vendor record rather than sitting in someone's inbox.

We help clients prepare and issue 1099s every year, and I can tell you there is a huge difference between January looking like this:

"Everyone's W-9s are collected, payments are categorized, and we're ready to review."

versus:

"We're missing six W-9s and nobody is answering us."

You can probably guess which one I prefer.

One More W-9 Change to Watch

There is also a clarification coming to Form W-9 involving disregarded entities, most commonly single-member LLCs that haven't elected corporate tax treatment.

The draft Form W-9 adds the sentence:

"Do not enter the EIN of a disregarded entity."

The underlying rule isn't actually new. The clarification is there because W-9s for single-member LLCs are commonly completed incorrectly.  

This is another reason that simply getting a W-9 isn't enough.

You want to make sure it was completed correctly.

My Takeaway for Business Owners

I'm happy to see the $600 threshold finally increase.

It was long overdue.

But I don't want business owners to read "$2,000 threshold" and conclude that they can stop thinking about 1099s until January.

The better system is:

Collect the W-9 when you hire the person. Track how you pay them. Keep your vendor information current. And review your 1099 activity before year-end.

Then January becomes a filing exercise rather than a scavenger hunt.

And that is exactly what good tax planning and good bookkeeping are supposed to do: make tax deadlines boring.

Need help?

If you need help with your 1099s for 2026, reach out by emailing us at bookkeeping@juliemerrillcpa.com now so we can get you in our queue!