By Andrew Miller
Many small businesses work with independent contractors.
Using contractors can save money and allow for greater flexibility. Unlike employees, contractors don’t receive benefits like healthcare or a 401(k). In addition, contractors don’t receive a regular salary.
When they complete a project, they receive a 1099 form documenting what they were paid. This form helps both the business and the IRS keep track of who earned what.
Now, this process is changing for the first time since the 1950s.
In the past, businesses sent a 1099 form to any contractor not registered as an LLC or a corporation that they paid at least $600 to in a single year. Under the One Big Beautiful Bill Act, that threshold has risen to $2,000.
So, what does this mean for businesses using contractors?
There are two types of 1099 forms businesses commonly use. The first, a 1099-NEC, covers payments to contractors, freelancers, and other non-W2 workers. The other, a 1099-MISC, handles payments like rent, royalties, prizes, and legal settlements.
With the policy change, businesses only need to send contractors a 1099 form if they paid them at least $2,000 during 2026. That includes both the 1099-NEC and 1099-MISC forms.
Of course, contractors will still be required to pay taxes on all of their earnings. That includes money they didn’t receive a 1099 for.
For income paid during the 2026 tax year, the old $600 threshold no longer applies. Starting in 2027, the IRS will also adjust the $2,000 threshold annually for inflation. The updated threshold limits will be announced each fall for the upcoming year.
One last thing to keep in mind: the new $2,000 threshold applies to federal filings, but not every state has followed suit. Massachusetts, Maryland, Vermont, and others will still require 1099-NEC reporting at $600. Rhode Island’s threshold starts at $100. Check your state’s requirements before assuming the federal change covers everything. W-9s are still required regardless of payment amount, so that part of your onboarding process stays the same.
The short version: less paperwork, same diligence. Good bookkeeping year-round is still your best defense come January.
P.S. Tax rules change fast and every business situation is different. These changes could be worth a conversation with your accountant. In the meantime, if your business needs funding, that’s where we come in. Contact us now to explore your options .