New 1099-NEC Reporting Threshold Explained
Beginning in 2026, the federal reporting threshold for Form 1099-NEC will increase from $600 to $2,000 under the One Big Beautiful Bill Act (OBBBA). This change aims to simplify paperwork for small businesses while maintaining income reporting integrity for the IRS and California Franchise Tax Board (FTB). Although fewer 1099s will be issued, both contractors and businesses must continue reporting all income accurately to stay compliant with federal and state rules.
Beginning in 2026, both businesses and independent contractors will see one of the most meaningful updates to small business reporting in years — an increase in the income threshold for issuing Form 1099-NEC. Thanks to recent legislation under the One Big Beautiful Bill Act (OBBBA), the amount that triggers a required 1099-NEC will rise from $600 to $2,000, with future increases tied to inflation. This change is designed to simplify paperwork for small businesses while keeping income reporting clear and transparent for the IRS and California Franchise Tax Board (FTB).
What’s Changing — and When
Until the end of 2025, businesses must issue a Form 1099-NEC to any independent contractor or freelancer paid $600 or more during the year. Starting in tax year 2026, that threshold increases to $2,000, with annual adjustments for inflation beginning in 2027. While this means fewer forms to prepare and send, it’s important to remember that all income is still taxable — even if no 1099 form is issued.
Why This Matters
For businesses, the higher threshold will reduce the number of 1099-NEC forms that must be issued, easing administrative work. However, it doesn’t eliminate the responsibility to track all contractor payments and maintain accurate records. Businesses in California must also stay alert to worker classification rules. The higher threshold does not change how to determine whether a worker is an employee or contractor — and misclassification remains a top audit concern for both the IRS and California’s EDD.
For contractors and freelancers, receiving fewer 1099-NEC forms doesn’t mean the income is non-taxable. All self-employment income must still be reported. Keeping good records of invoices, deposits, and payments is more important than ever.
What California Businesses Should Know
California generally conforms to federal information-reporting rules, but its enforcement is often stricter. The Franchise Tax Board (FTB) and Employment Development Department (EDD) both use advanced data matching to ensure income and payments are reported correctly. Even if fewer federal 1099s are filed, California businesses should continue tracking all contractor payments and filing necessary forms.
What You Can Do to Prepare
1. Update your accounting system to reflect the new $2,000 threshold for 2026.
2. Collect and verify W-9s from all contractors.
3. Educate your contractors that fewer 1099s doesn’t mean less taxable income.
4. Maintain organized documentation — contracts, invoices, and tax IDs.
5. Monitor updates from the California FTB and EDD regarding state conformity.
The Bottom Line
The higher 1099-NEC threshold simplifies reporting for small businesses but does not change the requirement to report all taxable income. For California taxpayers, maintaining accurate records and staying aware of IRS and FTB regulations will remain essential. At All California Accountancy, we help business owners and independent professionals prepare for these transitions and stay fully compliant.
Disclaimer
This article is for educational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified CPA regarding your specific situation.
IRS Circular 230 Disclosure: Any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties or promoting, marketing, or recommending any transaction or matter addressed.