Big Changes Are Coming to 1099-NEC: Here’s What You Need to Know

Sep 25, 2025 | Business Tips, General

If you’re a small business owner who pays contractors, you’ve probably got the $600 1099-NEC threshold burned into your brain. But starting in 2026, that’s changing—and it’s a pretty big shift.

Here’s the rundown so you can stay ahead, stay compliant, and (hopefully) do a little less paperwork.

What’s Changing?

New 1099-NEC Reporting Threshold: $2,000

Beginning January 1, 2026, the threshold for issuing a Form 1099-NEC will jump from $600 to $2,000. Even better? Starting in 2027, that amount will be adjusted each year for inflation.

Here’s how it breaks down:

  • Until 2025: You still issue 1099-NECs for contractors paid $600 or more.
  • Starting tax year 2026: The threshold increases to $2,000.
  • From 2027 onward: It will adjust annually based on inflation.

So yes—you’ve still got to issue 1099s in early 2025 based on the old $600 rule. But once 2026 hits, the bar gets higher.

Backup Withholding Gets an Update Too

Backup withholding now aligns with the new threshold. That means if you pay a contractor under $2,000, those payments won’t trigger withholding.

Simple? Yes. But don’t forget—once inflation indexing kicks in, that number can change annually. Keep an eye out.

Who Benefits from This?

Small Business Owners

If you pay a few contractors under $2,000 per year, this rule change is a win.

Here’s why:

  • Less administrative work – Fewer forms to track and file.
  • Lower risk of IRS penalties – Fewer forms, fewer chances to mess them up.
  • Cost savings – You won’t have to pay your bookkeeper or software to issue as many 1099s.

What You Should Do Now

Let’s be honest—this isn’t just a “set it and forget it” situation. Here’s what to get moving on:

  1. Update your tracking systems
    Your accounting software should be able to handle both $600 and $2,000 thresholds depending on the year. If it can’t, it’s time to upgrade or get help.
  2. Still collect W-9s
    Even if a 1099 isn’t required federally, state rules or future changes might make that data necessary. Better safe than sorry.
  3. Pay attention to state requirements
    Some states may still require 1099s at $600—or even lower. Don’t assume federal changes apply across the board.
  4. Automate where you can
    Your accounting system or payroll software should help you track payments and flag contractors who cross the new threshold. If you’re doing it manually… it might be time to rethink that.

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