Getting Ready for 1099 Season Under the New $2,000 Rule
The Forms 1099 you file in early 2027 will be the first under the new $2,000 reporting threshold. Forms 1099-NEC for 2026 payments are due to contractors and to the IRS by February 1, 2027, because January 31 falls on a Sunday.
The change is also in our year-end checklist. The filing is the easy part. The work that makes January calm happens now: collecting Forms W-9, sorting out which payments you report, and choosing how you will file, because an old IRS system will not accept Forms 1099 for 2026. Here is what we would do this quarter.
What changed for 2026 payments
Under the July 2025 tax law, Public Law 119-21, the Form 1099-NEC threshold for payments made in 2026 is $2,000 per contractor for the year, up from $600. The same $2,000 figure applies to most Form 1099-MISC boxes, such as rent and other income, and to backup withholding. Starting in 2027, the amount will be adjusted for inflation each year. Expect some names from last year's list to drop off. Keep collecting W-9s anyway, because you will not know who crosses $2,000 until December.
Some thresholds did not move. Royalties are still reported at $10. Gross proceeds paid to an attorney, such as a settlement check, are still reported on Form 1099-MISC at $600. The 2026 Form 1099-NEC also adds boxes for tips and overtime pay, tied to the new federal deductions. If none of what you paid was tips or overtime, they stay blank.
Payments someone else reports
If you paid a contractor by credit or debit card, or through a payment app or online platform that settles the payment, those payments fall under the processor's Form 1099-K reporting. Leave them off your Form 1099-NEC. On the receiving side, the Form 1099-K threshold for payment apps and online platforms is back to more than $20,000 and more than 200 transactions. Card payments you accept are reported at any amount.
Checks, ACH and wire transfers, and cash are yours to report. So are payments through bank-to-bank services such as Zelle, which says it does not issue Forms 1099-K.
Payments to corporations, including LLCs taxed as corporations, are generally exempt. The W-9 tells you how the payee is taxed. Legal services are the main exception: attorneys' fees of $2,000 or more go on Form 1099-NEC even when the law firm is a corporation. Medical and health care payments are another.
Collect W-9s before the last check
Ask for a Form W-9, using the current version on IRS.gov, before you make the last 2026 payment to anyone at or near $2,000. People tend to respond faster while they are waiting to be paid than they do in late January.
If a contractor will not provide a taxpayer identification number, the law requires you to withhold 24 percent, called backup withholding, generally once the year's payments reach $2,000, or from the first payment if you had to file a Form 1099 for that person last year. If you have filed certain Forms 1099 in one of the last two years, the IRS's TIN Matching service in e-Services can check up to 25 names and numbers at a time. Fixing a mismatch now is easier than answering an IRS notice later.
Decide now how you will file
If you file 10 or more information returns in total, counting Forms W-2 and 1099 together, you must file electronically. Six Forms W-2 and four Forms 1099 are enough to require it.
The IRS's older FIRE system accepts no filings after 3 p.m. Eastern time on November 19, 2026. Forms 1099 for 2026 go through the Information Returns Intake System, or IRIS. Forms W-2 still go to the Social Security Administration. The IRIS Taxpayer Portal is free and accepts up to 100 returns at a time. First you need an IRIS Transmitter Control Code, and the IRS says the application can take up to 45 days. If you plan to file yourself, apply now. If a payroll provider or accountant files for you, confirm that now.
Form 1099-NEC is due to recipients and the IRS on February 1, 2027. Form 1099-MISC goes to recipients by the same date, or February 16 for attorney proceeds, and to the IRS by March 1 on paper or March 31 electronically. Penalties are charged per form and grow the longer a form is late.
California rules to check
California follows the new $2,000 threshold for 2026 Forms 1099-NEC and 1099-MISC, according to the Franchise Tax Board's filing guide, even though California generally has not adopted the 2025 federal law.
The Employment Development Department has its own report. Form DE 542 is due within 20 days after you pay an individual contractor $600 or more, or sign a contract for $600 or more, whichever comes first. The EDD ties the report to contractors you must report on a federal Form 1099. When we checked in October 2026, it had not said how the new federal threshold affects that. Unless it says otherwise, the cautious approach is to keep reporting at $600.
If you pay someone who lives outside California for work done here, and the year's payments exceed $1,500, California generally requires you to withhold 7 percent and report it on Form 592. The Franchise Tax Board can approve a waiver or a reduced amount.
Whether someone should be a contractor at all is a separate question. Under AB 5, California generally presumes a worker is an employee unless the business meets a three-part test. If classification is in doubt or in dispute, work with an employment attorney. We handle the tax reporting.
What to do this quarter
Run a year-to-date vendor report by payee and payment method. Flag anyone paid $1,500 or more by check, bank transfer, or cash, since they could cross $2,000 by December 31. Request missing W-9s and note each payee's entity type. Bring your California DE 542 reports current. Decide who will file, and if it is you, start the IRIS application. Then put February 1 on the calendar.
Book a planning call
If you want help sorting your vendor list or setting up year-end filings, book a time with our team at calendly.com/kirkcole/15-minute-meeting.
This article is general information, not tax advice for your situation. Tax rules change, and the right move depends on your facts.