If you pay contractors, freelancers, or vendors, you’ve probably heard the 1099 threshold for contractors just went up to $2,000. What’s less talked about is what hasn’t changed — and that’s the part that matters for your bookkeeping.
What changed, exactly
The 1099 threshold for contractors moved from $600 to $2,000 under the One Big Beautiful Bill Act, signed into law 4 July 2025. It applies to payments made after 31 December 2025 — so it kicks in for the 2026 tax year, with forms due by 31 January 2027. From 2027 onward, the $2,000 figure will be adjusted for inflation each year.
There’s no business-size test attached to this. It doesn’t matter if you’re a solo consultant or a firm with fifty staff — the threshold is based purely on how much you paid one contractor in a calendar year, not on the size of your business.
There’s a second, related change worth knowing about: the 1099-K threshold for payment platforms like PayPal, Venmo, and Stripe has reverted to $20,000 and 200 transactions. Unlike the $2,000 NEC/MISC change, this one is already in effect — the IRS confirmed in October 2025 that it applies retroactively to 2025 transactions as well as 2026 onward.
Why “no 1099 required” doesn’t mean “no records needed”
This is the part worth sitting with. A higher threshold changes when you’re required to file a form — it does not change what’s taxable, and it doesn’t remove the recordkeeping you still need behind the scenes.
The income is still taxable, 1099 or not. Your contractor owes tax on every dollar you pay them, regardless of whether you were required to report it. If the IRS ever asks how you arrived at a deduction, “we didn’t have to send a 1099” isn’t an answer — you still need to show what you paid, to whom, and for what.
Backup withholding didn’t disappear. The 24% backup withholding requirement now aligns with the new $2,000 threshold too — but if a contractor crosses $2,000 and hasn’t given you a valid W-9, you’re still on the hook to withhold. You won’t always know in month one whether a contractor will end the year above or below the line.
Your state may not agree with the IRS. Most states have not adopted the new federal threshold. Several — Colorado is one confirmed exception — will accept $2,000, but plenty of others still expect $600-level reporting for state purposes. If your bookkeeping workflow quietly stops tracking anyone under $2,000, you could create a state filing gap without realizing it.
What still needs tracking below the new threshold
- A W-9 from every contractor, from day one. You don’t know at the start of a relationship whether total payments will land above or below $2,000 by December — so collect the form before the first payment goes out, not after you’ve crossed the line.
- A running, per-contractor total all year. The $2,000 is cumulative across the calendar year, not per invoice. Without a running tally, it’s easy to miss the exact payment that tips someone over the threshold.
- Receipts and documentation for every payment, regardless of amount. These support your own deductions on your return — that requirement doesn’t move just because the 1099 threshold did.
- Your state’s own threshold checked once a year rather than assumed to match the federal number.
Three things to remember
- Track every payment, not just the big ones. The $2,000 is a running annual total per contractor, and many states still expect reporting at $600 — turning off tracking below $2,000 can leave you exposed at the state level.
- Collect W-9s from day one. You can’t fix a missing TIN after the fact, and backup withholding still applies at $2,000 and above without one on file.
- No 1099 doesn’t mean no tax. Your contractor still owes tax on every dollar, and you still need clean records to back up your own deduction if it’s ever questioned.
The bigger picture
The 1099 threshold for contractors moved. The reason you keep records didn’t. A higher dollar figure just means fewer forms land in your contractors’ inboxes each January — it doesn’t lower the bar for what you need to show if anyone asks. If anything, with fewer 1099s acting as a built-in paper trail, your own bookkeeping is doing more of that work now, not less.
If you’d like a hand setting up a contractor-payment tracker that flags who’s approaching $2,000 — and checks your state’s threshold at the same time — that’s a quick, practical fix worth putting in place before year-end, not after your first missing W-9.
Charlene Simpson is a bookkeeper and co-founder of Crowned Bookkeepers, running Crowned Bookkeepers LLC and supporting US service businesses with the numbers behind the numbers.
