How the One Big Beautiful Bill Act Will Affect 1099s in 2026

If you own a business, you know the dreaded Form 1099. It’s the paperwork that shows up every January, reminding you of all the payments you made to contractors, freelancers, and service providers over the past year. For decades, the threshold has been set at $600: meaning if you paid someone more than that, you had to send them a 1099 and report it to the IRS.

Well, get ready to pop some confetti, because change is finally here. The One Big Beautiful Bill Act is shaking things up, and starting in the 2026 tax year, the way we handle 1099s will look very different.

And this isn’t just a small tweak. This is a HUGE deal. Let’s walk through exactly what’s changing and what it means for your business.

The Big Change

Under the One Big Beautiful Bill Act (OBBBA), the threshold for issuing a 1099 is increasing from $600 to $2,000. That’s right. Finally, we’ve moved beyond a number that was set back when gas was $1.25 a gallon and a cell phone weighed as much as a brick.

What this means for you:

• If you pay a contractor $1,500 in 2026, you no longer need to send them a 1099.
• If you pay them $2,100, you’re still on the hook.
  

This change alone will dramatically reduce the number of 1099s businesses need to issue, which means fewer forms cluttering your January, fewer W-9s to chase down, and a lot less administrative headache.

Keeping Up With Inflation

Another smart update: starting in 2027, the $2,000 threshold won’t just sit there collecting dust. It will adjust for inflation each year, using the IRS cost-of-living formula.

Translation? No more waiting 40 years for Congress to realize $600 doesn’t go as far as it used to. The threshold will rise with the economy. And if the inflation adjustment isn’t a clean $100 number, it will get rounded to the nearest $100.

Why this matters: You’ll have more predictable rules that stay aligned with real-world costs, which helps you plan more confidently year after year.

What About Backup Withholding?

The Act also makes a key change to backup withholding rules. Previously, if a contractor didn’t give you a valid taxpayer identification number (TIN), you had to withhold 24% on payments over $600 and send it to the IRS.

Now, that threshold moves up to $2,000 as well. Payments below that amount won’t trigger backup withholding requirements.

In practice: This gives smaller vendors and contractors some breathing room, and it spares businesses from having to handle withholding on small-dollar payments.

Don’t Forget About 1099-K

There’s another wrinkle that business owners should be aware of. The IRS had originally planned to lower the reporting threshold for Form 1099-K (used by third-party settlement organizations like PayPal, Venmo, and online marketplaces) down to $2,500 for 2025.

That plan was scrapped. Instead, the threshold remains at $20,000 AND 200+ transactions.

Why this matters: If you receive payments through apps or marketplaces, you won’t see the flood of 1099-K forms that was expected under the lower $2,500 rule. This reversal saves countless small sellers and side hustlers from unnecessary reporting headaches.

When Does All This Kick In?

Circle your calendar: these changes apply to payments made after December 31, 2025. So the first 1099s you’ll issue under the new rules will be for the 2026 tax year, which you’ll file in early 2027.

That gives you some time to prepare your processes and systems, and to celebrate that next January might just feel a little less overwhelming.

Why This Is a Win for Businesses

For years, small businesses have complained about the 1099 threshold being outdated. The $600 mark was set decades ago and never adjusted for inflation. That meant even small one-off contractor payments triggered filing requirements, leading to a mountain of paperwork for businesses of every size.

The OBBBA finally brings common sense into play. By raising the threshold to $2,000 and tying it to inflation:

• You’ll issue fewer 1099s. That means less admin work, less time chasing W-9s, and fewer errors to worry about.
• You’ll have clearer, fairer reporting standards. The rules will better reflect today’s economy.
• You’ll free up capacity. Less time on paperwork means more time focusing on running (and growing) your business.

And by keeping the 1099-K threshold at $20,000 and 200+ transactions, the IRS avoided overwhelming small businesses and online sellers with unnecessary forms.

But Don’t Tune Out Just Yet…

Before you toss your 1099 tracking spreadsheet out the window, remember: this doesn’t eliminate the responsibility entirely. Once your payments cross $2,000 to a vendor, the reporting rules kick in just like before.

And the IRS? Let’s just say they’re not known for their sense of humor. If you skip required forms, penalties still apply.

So yes, life is about to get easier. But you’ll still need a good system in place for tracking contractor payments, requesting W-9s, and issuing 1099s when required.

What You Should Do Now

Here are a few action steps to help you prepare:

1. Review your vendor payment processes. Make sure your bookkeeping system can easily track totals paid to each contractor.
   
2. Keep collecting W-9s. Even with the higher threshold, it’s smart to collect them up front for anyone you plan to pay.
   
3. Talk to your CPA. These changes may reduce your workload, but you’ll want professional guidance to ensure you stay compliant.
   
4. Plan ahead for 2026. Use 2025 as a practice year to refine your processes so you’re ready when the new rules go live.
   

The Takeaway

The One Big Beautiful Bill Act lives up to its name for small businesses: it’s simplifying a long-standing headache and finally modernizing 1099 reporting rules.

Come 2026, you’ll have fewer forms to send, fewer rules to stress over, and more time to focus on the work that really matters.

These updates aim to reduce the administrative burden on businesses and align reporting requirements with modern economic conditions. If you have further questions or need assistance with compliance, feel free to reach out.