If you own a small business and regularly pay independent contractors, there is an important change for 2026 that may affect your year-end reporting.
For years, many business owners became familiar with the $600 rule: if you paid an independent contractor $600 or more for services during the year, you generally had to issue a Form 1099-NEC.
Beginning with payments made in 2026, that threshold has increased to $2,000.
That may sound like a simple change, but there are a few things I would caution business owners not to misunderstand.
A Higher Threshold Does Not Mean You Can Stop Keeping Records
I sometimes see business owners focus only on whether a 1099 needs to be issued.
But the better question is:
“Do I have proper records for everyone I paid?”
Even if you pay a contractor less than $2,000 and no Form 1099-NEC is ultimately required, you should still keep documentation showing who was paid, how much was paid, and what the payment was for.
Your bookkeeping records and your 1099 filing requirements are two separate issues.
The $2,000 Threshold Applies to 2026 Payments
According to current IRS guidance, payments for services performed by someone who is not your employee generally have the following reporting thresholds:
- Before 2026: $600 or more
- For payments made in 2026: $2,000 or more
- After 2026: the threshold is expected to be adjusted for inflation.
So if your business hires freelancers, consultants, bookkeepers, designers, repair professionals, or other independent contractors, this is something to keep in mind throughout the year—not just when January arrives.
One Habit I Still Recommend: Get the W-9 First
Even with the higher reporting threshold, I would not recommend waiting until year-end to collect Form W-9.
A much cleaner process is to request a completed Form W-9 before or when you begin paying a new contractor.
Why?
Because by January, contractors may be difficult to reach, contact information may have changed, or the taxpayer identification information you have may be incomplete.
Having the W-9 on file from the beginning makes year-end reporting much easier.
And Remember: Contractor Classification Still Matters
The new $2,000 reporting threshold does not change the rules determining whether someone is an employee or an independent contractor.
Paying someone less than $2,000 does not automatically make that person a contractor, and issuing—or not issuing—a 1099 does not determine worker classification.
That determination depends on the actual working relationship.
A Small Change That Can Simplify Year-End Reporting
For many small businesses, increasing the threshold from $600 to $2,000 will reduce the number of Forms 1099-NEC they need to prepare.
But I would still recommend maintaining the same good habits throughout the year:
Keep accurate vendor records, obtain W-9s early, properly categorize payments, and review contractor totals before year-end.
Good bookkeeping makes tax reporting much easier—even when the reporting rules become simpler.
Official IRS Source:
IRS, A Guide to Information Returns — the IRS lists the Form 1099-NEC reporting threshold as $2,000 for applicable payments made in 2026.
This article is for general informational purposes only and is not intended as individualized tax advice. Tax rules may vary depending on your specific circumstances.