OBBBA’s New 1099 Filing Rules: What Every Business and Contractor Needs to Know
The IRS has long required businesses and payment platforms to report certain payments through Form 1099-NEC and Form 1099-K. But with the passage of the One Big Beautiful Bill Act (OBBBA), the rules are changing, significantly. These changes affect independent contractors, small businesses, gig workers, and third-party platforms like PayPal and Venmo.
In this guide, we’ll break down what the OBBBA means for 1099 reporting, the new filing thresholds, penalties for noncompliance, and how businesses should prepare.
Why 1099 Reporting Matters
Fewer businesses will need to file 1099-NECs each year.
The higher threshold reflects modern inflation (the $600 limit was set back in 1954!).
Administrative burden and penalties for noncompliance should decrease for small businesses.
⚠️ Important Exception: Businesses do not need to file a 1099-NEC if payments are made via a TPSO (like PayPal) or by credit/debit card. In these cases, the TPSO is responsible for reporting via Form 1099-K.
That’s why businesses must pay close attention to these changes. Failing to file the right form could mean hefty IRS penalties and potential audits.
New $2,000 Threshold for Form 1099-NEC
The Old Rule
Until now, businesses were required to file Form 1099-NEC if they paid an independent contractor $600 or more in a year by cash, check, or direct deposit. This included payments to attorneys, physicians, and other professionals—even if they were incorporated.
Failing to file could result in a $310 penalty per form, or up to $660 per form (with no maximum) if the IRS determined intentional disregard.
The OBBBA Change
Beginning in 2026, the filing threshold rises from $600 to $2,000. Starting in 2027, it will be indexed for inflation in $100 increments.
This adjustment reduces the filing burden for businesses while recognizing that the $600 threshold (set in 1954) has never been adjusted for inflation.
Backup Withholding Rules
The new $2,000 threshold also applies to the 24% backup withholding rule if an independent contractor fails to provide a valid W-9.
Exceptions: When You Don’t File Form 1099-NEC
Businesses do not need to file Form 1099-NEC when payments are made through:
- Third-party settlement organizations (TPSOs) like PayPal, CashApp, or Venmo
- Credit cards
- Debit cards
Instead, reporting responsibility shifts to Form 1099-K, filed by the TPSO.
Form 1099-K: Who Files and When
What It Covers
Form 1099-K is used to report payment card transactions and third-party network payments. TPSOs include:
- PayPal, CashApp, Venmo
- Gig platforms (Uber, Airbnb, Upwork)
- Online marketplaces (Amazon, eBay, Etsy)
- Ticket resale sites (Ticketmaster)
- Some crypto processors (BitPay)
- Crowdfunding platforms
A Brief History of 1099-K Thresholds
- 2011–2021: Only required if the payee earned over $20,000 AND had more than 200 transactions.
- 2021 (American Rescue Plan Act): Lowered threshold to $600 with no transaction limit (never fully implemented).
- 2024: Temporary $5,000 threshold.
- 2025 (planned): $2,500 threshold (canceled by OBBBA).
The OBBBA Reset
Starting in 2025, OBBBA permanently restores the $20,000 AND 200 transaction threshold for 1099-K reporting. This applies retroactively to 2022, eliminating confusion about temporary thresholds.
What this means:
- If a contractor receives less than $20,000 OR has fewer than 200 TPSO transactions, no 1099-K will be filed.
- This creates a large reporting gap, making compliance voluntary for many gig workers and sellers.
State-Level 1099-K Rules
Not all states follow federal rules. Some have much lower thresholds for 1099-K reporting:
- District of Columbia, Maryland, Massachusetts, Montana, North Carolina, Vermont, Virginia: $600
- Rhode Island: $100
- Illinois: $1,000 and 4+ transactions
- New Jersey: $1,000
- Arkansas: $2,500
Businesses operating in these states must comply with state thresholds, even if federal rules don’t require filing.
What About Form 1099-MISC?
Form 1099-MISC is no longer used for contractor payments (since 2020). Instead, it now covers miscellaneous income such as:
- Rent payments
- Legal settlements
- Prizes and awards
- Other non-wage income
Starting in 2026, the OBBBA sets the same $2,000 threshold (indexed for inflation) for Form 1099-MISC.
Penalties for Noncompliance
Failure to file the correct 1099 forms can be costly:
- $310 per form for late or missing filings.
- $660 minimum per form if the failure is intentional (or 10% of the amount, whichever is greater).
- Worker Misclassification Penalties: Misclassifying employees as independent contractors can double your liability in an IRS audit.
Key Takeaways for Businesses
- 2025 Rule (Transition Year) Businesses must still file 1099-NECs for payments of $600 or more.
- 2026 and Beyond: 1099-NEC threshold rises to $2,000 (with inflation adjustments in 2027).
- Form 1099-K – Reverts permanently to the $20,000 + 200 transaction threshold (retroactive to 2021).
- State Compliance: Many states require reporting at much lower thresholds—businesses must track both federal and state compliance.
- 1099-MISC – Adopts the $2,000 threshold in 2026.
Final Thoughts
The OBBBA dramatically shifts IRS reporting requirements for businesses and contractors. While the higher thresholds reduce administrative burden, they also reopen a major compliance gap for payments made through TPSOs.
Businesses should:
- Track payments carefully in 2025 under the current $600 rule.
- Update accounting systems for the $2,000 threshold starting in 2026.
- Stay alert to state-specific rules, which may impose stricter reporting.
Even if you don’t receive a 1099, remember: all income is still taxable. The IRS may not see every payment, but taxpayers remain responsible for accurate reporting.
