Congress has already passed a law that will raise the $600 threshold for 1099-NEC, so this is more than just speculation. The change is set to take effect beginning with tax year 2026.
What Congress Did
In July 2025, Congress passed the One Big Beautiful Bill Act (Public Law 119-21). Among many tax changes, Section 70433 raises the reporting threshold for Forms 1099-NEC and 1099-MISC from the current $600 to $2,000 for tax year 2026. After 2026, the threshold will be indexed for inflation.
Key Details
- Effective date: The increase from $600 to $2,000 applies for payments made in calendar year 2026 and beyond.
- Inflation indexing: Starting after 2026, the $2,000 threshold will adjust annually with inflation.
- Backup withholding: Threshold adjustments also apply to backup withholding when a payee fails to provide a valid TIN.
What This Means in Practice
For tax year 2025 and earlier, the $600 threshold remains in effect. If you pay a contractor $600 or more in 2025, you must still issue a 1099-NEC. Beginning in 2026, only non-employee compensation totaling $2,000 or more in a year will trigger a 1099-NEC.
Businesses will likely issue fewer 1099s, but must still track payments carefully, especially when multiple smaller payments accumulate. Contractors and gig workers must still report all income, regardless of whether they receive a 1099.
Why the Change Happened
- Administrative and compliance burden — The $600 threshold led to a lot of paperwork for small businesses and contractors. Raising it reduces the number of forms filed.
- Inflation and cost — Over time, $600 has not kept up with inflation, so indexing thresholds provides relief.
- Stakeholder pressure — Small business groups, gig-economy platforms, and accounting professionals pushed for an increase to cut compliance costs.
What Still Might Be Unsettled
- Awareness and preparation: Businesses must prepare for the 2026 change by updating systems and vendor tracking.
- State rules: Some states follow federal thresholds, but others set their own. Multi-state filers need to check local requirements.
- IRS guidance: Details about aggregation, reporting exceptions, and classification may need further clarification.
- Future policy changes: Congress could amend the law again, though there’s no sign of immediate changes.
Looking Ahead
Because the new threshold is indexed for inflation, it will increase over time. Whether Congress raises it further beyond inflation adjustments will depend on balancing the goal of reducing paperwork with the IRS’s need for visibility into reported income.
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