The 2026 1099 Threshold Change: What Every Small Business Owner Needs to Know

For decades, the rule was simple: if you paid a contractor $600 or more in a year, you filed a 1099. That $600 threshold was set in 1954 and never adjusted for inflation. Until now.

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, raised the reporting threshold for Form 1099-NEC and Form 1099-MISC from $600 to $2,000 starting with payments made in calendar year 2026. The new threshold is also indexed for inflation, meaning it will automatically adjust in future years.

This is genuinely good news for small businesses. If you hire a graphic designer for a $1,500 project or pay a consultant $1,800 for the year, you no longer need to file a 1099 for them. The IRS estimates this will eliminate millions of unnecessary filings annually.

Here is the timeline that matters:

The forms affected are 1099-NEC (nonemployee compensation, the most common one for contractors) and 1099-MISC (rents, royalties, other income). The change applies to the total amount paid to a single recipient during the calendar year.

Important: If you file 10 or more information returns in aggregate across all types, the IRS now requires electronic filing. Paper filing is no longer an option for most businesses.

The 1099-K (payment card and third-party network transactions) follows a different set of rules. For 2025, the threshold remains at $20,000 in gross payments AND 200+ transactions. The IRS has been trying to lower this to $600 since 2021 but keeps delaying implementation.

The OBBBA did not change the 1099-K threshold. If you sell on Etsy, accept payments through Stripe, or use any payment platform, the existing rules still apply. Do not confuse the 1099-NEC/MISC threshold change with the 1099-K — they are separate.

While we are talking about tax changes, here is another one that matters: the Qualified Business Income (QBI) deduction — the one that lets pass-through business owners deduct up to 20% of qualified business income — was set to expire after 2025. The OBBBA made it permanent.

If you are a sole proprietor, S-corp owner, or LLC member, this is significant. The deduction can save you thousands per year. The phase-in range was also expanded from $50,000 to $75,000 (single) and $100,000 to $150,000 (joint), and a new minimum deduction of $400 was added for active business owners with at least $1,000 of QBI.

The catch: you need clean books to calculate your QBI accurately. If your income and expenses are a mess, you cannot claim a deduction you cannot prove.

1. Finish your 2025 filings first. The old $600 threshold still applies to 2025 payments. If you paid any contractor $600+ last year, file those 1099-NECs now if you have not already. The deadline was February 2, 2026.

2. Update your contractor tracking for 2026. You still need to collect W-9 forms from every contractor regardless of how much you pay them. The threshold only affects whether you file a 1099, not whether you track payments.

3. Keep good records all year. Do not wait until January to figure out which contractors crossed the $2,000 mark. Track every payment as it happens. LobsterBooks automatically tallies contractor payments by party and flags when they approach the threshold — so you are never scrambling at tax time.

4. Talk to your accountant about QBI. The permanent QBI deduction is worth real money, but you need organized books to claim it. If your financial records are not in order, now is the time to fix that.

LobsterBooks tracks every payment to every contractor throughout the year with built-in 1099 tracking. Each customer and supplier record includes a "Track for 1099" toggle, and the system automatically tallies annual payments.

When tax time comes, you can pull a report showing exactly which contractors crossed the filing threshold, with payment totals, dates, and categories already organized. No more digging through bank statements in January.

Combined with AI-powered categorization that classifies contractor payments automatically, and receipt OCR that captures details from every invoice, your 1099 preparation goes from a weekend-long ordeal to a five-minute report export.

Start your 14-day free trial and get your contractor payments organized before the new threshold takes effect.