The 1099 is how the IRS tracks money moving to people who aren't employees: independent contractors, gig workers, freelance consultants, and businesses you pay for services. For employers, issuing 1099s is one of the payroll-adjacent compliance tasks that comes around every January. For 2026, the rules shifted in a meaningful way for the first time in 70 years: the reporting threshold for the most common 1099 forms jumped from $600 to $2,000.
How 1099 Forms Fit Into the Payroll Stack A 1099 is to a contractor what a W-2 is to an employee: a year-end tax document that reports what was paid and, for some variants, what was withheld. The core difference is that 1099 recipients are not on payroll . They're paid outside the regular wage system, they handle their own taxes, and the employer does not withhold federal income tax, FICA , or Medicare.
Because there's no withholding, the 1099 is an informational return. It tells the IRS what to expect the contractor to report on their own tax filing, and it gives the contractor the paperwork they need when reconciling their own books.
The 2026 Filing Threshold Change Payments made on or after January 1, 2026 are subject to a new threshold. Under the One Big Beautiful Bill Act passed in July 2025, the 1099-MISC and 1099-NEC reporting floor increased from $600 to $2,000. This is the first change to that threshold since 1954. Starting with the 2027 filing year, the $2,000 floor will be adjusted annually for inflation.
The 1099-K threshold for third-party payment processors reverted to its original level of $20,000 and more than 200 transactions in a calendar year. That rolls back the $600 threshold that had been planned under earlier legislation.
Do Contractors Still Owe Taxes Below the $2,000 Threshold? Yes. The threshold only determines whether the payer has to file a 1099, not whether the income is taxable. A contractor who earned $1,500 from a client in 2026 still has to report that income on their personal tax return. The difference is that the client isn't required to send a form documenting the payment, which creates more reconciliation work for the contractor, not less tax liability.
Which 1099 Form Do You Issue? Three 1099 variants cover most business situations. 1099-NEC reports non-employee compensation, most commonly payments for services provided by independent contractors. This is the form most businesses file when they pay a freelancer.
1099-MISC reports other types of non-wage income: rent, royalties, prizes, awards, and legal settlements. Most service-for-hire payments moved off 1099-MISC in 2020 and now go on 1099-NEC.
1099-K reports transactions processed through third-party payment platforms like PayPal, Stripe, or online marketplaces. This one is filed by the payment processor, not the business that bought the service.
What's the Difference Between 1099-NEC and 1099-MISC? The split is mostly about who the payee is and what the payment was for. 1099-NEC covers payments of $2,000 or more to non-employees for services rendered. 1099-MISC covers other types of reportable payments, including rent over $600 (the $2,000 threshold change does not apply to 1099-MISC rent), royalties over $10, and gross proceeds to attorneys. When in doubt, 1099-NEC is the form for paying a person to do work for you.
Keeping 1099 Reporting Accurate in 2026 For payroll and AP teams, the practical 2026 action items are small but real. Update vendor management and accounts payable systems to reflect the new $2,000 threshold before year-end reconciliation. Run a test to confirm nobody drops through the gap when a contractor is paid $1,800 in 2026 and then $800 in early 2027 (the threshold applies per calendar year). Communicate the change to contractors so they understand why some of them may not receive a 1099 this year even if they did last year.
Accurate compensation documentation for non-employees has the same downstream stakes as it does for W-2 workers. Errors now translate into IRS notices later, and the penalty for a missed or inaccurate 1099 is per form.
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