Updated 1099 Rules Under the One Big Beautiful Bill Act: What Small Businesses Need to Know in 2026 and Beyond 

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings some meaningful changes to small business and contractor tax reporting — including significant updates to 1099 information reporting requirements. These changes aim to simplify reporting for businesses and reduce the administrative burden of issuing IRS Forms 1099. 

Whether you’re a small business owner, a bookkeeper, or a fractional CFO helping clients manage tax compliance, here’s a breakdown of what you need to know. 

1. Higher Thresholds for 1099-MISC and 1099-NEC

Under the new law, the longstanding $600 reporting threshold for Forms 1099-MISC and 1099-NEC will increase significantly: 

New Threshold: 

• Starting with payments made in 2026, businesses are only required to file a Form 1099-MISC or 1099-NEC if total payments to an unincorporated contractor or vendor are $2,000 or more in a calendar year. 

• Beginning in 2027, this $2,000 threshold will be indexed for inflation. 

What this means: 
If you pay a freelancer, consultant, or other non-employee less than $2,000 over the course of the year, you won’t be required to issue a Form 1099-NEC or 1099-MISC for those payments though the recipient still legally must report and pay tax on their income. 

This is the first major change to the 1099 reporting threshold in decades and reflects inflation and modern business practices more accurately than the old $600 standard. 

2. Changes to Form 1099-K Reporting

Another headline change under the OBBBA affects Form 1099-K, which is used by third-party payment processors (like PayPal, Venmo, Etsy, and Stripe) to report payments made through their platforms: 

New (Old) Threshold Reinstated: 

• The law reinstates the original reporting threshold of $20,000 in gross payments AND more than 200 transactions in a calendar year for a single payment platform. 

• This reverses the lower thresholds that were previously planned to take effect including a $600 trigger that caused concern in the gig economy.  

Effective Retroactively: 

• This change applies “as if” the new law had always been in place effectively eliminating the intermediate reduced thresholds that were scheduled for 2025 and 2026.  

What this means: 
For many small sellers and gig workers who receive payments through platforms, this reinstated threshold dramatically reduces the number of 1099-K forms issued and cuts back on surprise tax forms for casual or low-volume sellers.  

3. Backup Withholding Thresholds Also Increase

OBBBA doesn’t just change when you issue the form, it also raises the minimum amount that triggers backup withholding: 

The backup withholding threshold which applies when a payee fails to furnish a correct taxpayer identification number (TIN) will also increase to $2,000 and be indexed for inflation beginning in 2027. 

This aligns withholding obligations with the new reporting thresholds and reduces unnecessary withholdings for lower-dollar payments. 

4. What’s Not Changing (In 2025) 

It’s important to note that for the 2025 tax year, the IRS has confirmed that reporting procedures including existing forms and withholding tables remain unchanged. Employers and payors should continue to use current thresholds and processes throughout 2025.  

Drafts of updated 2026 forms and guidance are expected as the IRS finalizes rules around these new thresholds, including form revisions and instructions. 

5. Practical Takeaways for Small Businesses

Here are the key actions small business owners and financial professionals should take now: 

• Update accounting systems to track contractor payments with the new $2,000 threshold in mind. 

• Communicate with contractors so they understand they may receive fewer 1099s but still must report all taxable income. 

• Monitor IRS guidance for updated forms and reporting procedures for tax year 2026. 

• Review backup withholding procedures to ensure they align with the new requirement. 

The One Big Beautiful Bill Act provides meaningful relief for businesses and independent contractors by reducing paperwork and aligning information reporting with real-world payment practices. While income reporting requirements still apply for tax purposes, fewer low-dollar 1099 forms mean less administrative burden and smoother tax seasons for many small businesses. 

If you’re a business owner, now is the time to prepare your 2026 compliance processes and update internal reporting practices accordingly.