The 2026 1099 Rules, Explained in Plain English

If the last few years of 1099 headlines left you confused, you had good reason. The rules kept changing, the changes kept getting delayed, and half the advice online was already out of date by the time you read it. A law signed in July 2025 finally settled things for 2026 — and it moved two different numbers in two different directions. One threshold went up. One went back to where it was for years. Here's what actually changed, in plain English, whether you pay contractors or get paid through Square, PayPal, or Venmo.

Why this got so confusing

For years, the 1099 thresholds sat still, and nobody thought much about them. Then a 2021 law tried to drop the threshold for payment apps all the way to $600, with no minimum number of transactions. That would have meant a 1099 for almost anyone who sold a few things online or took a handful of card payments. It set off a wave of worry — and the IRS delayed it, twice, landing on a $5,000 stopgap for 2024 and $2,500 for 2025 while the full $600 rule loomed for 2026.

Then, in July 2025, a new tax law wiped the slate clean and set the numbers for 2026. So if you've been carrying around a scary threshold in your head from an article you read a year or two ago, there's a good chance it's already been overtaken. Let's start with the piece that trips people up the most: there isn't one 1099, there are two that matter here, and they don't work the same way.

The two 1099s people mix up

Almost every 1099 question I hear is really about one of these two forms. They sound alike and they both changed, but they cover completely different money and get sent by completely different people.

If you write checks to a bookkeeper, a designer, or a subcontractor, that's the 1099-NEC world, and you're the one on the hook to send the form. If you run sales through Square or invoice through PayPal, that's the 1099-K world, and the form comes to you. Plenty of business owners live in both worlds at once — which is exactly why keeping them straight matters.

1099-NEC: the $600 rule is now $2,000

For the first time since 1954, the threshold for reporting what you pay a contractor went up. If you pay someone $2,000 or more over the course of 2026 for their services, you send them a 1099-NEC. Pay them less than that, and — as far as the federal form goes — you don't have to. That $2,000 is measured per contractor: it's the total you paid one person across the year, not your total contractor spending. Ten contractors at $1,000 each is ten people under the line, not one $10,000 form. Starting in 2027, that $2,000 figure gets nudged up each year to keep pace with inflation.

On the surface this is a small win: fewer forms to chase down, especially for the little one-off payments that used to cross the $600 line. But a few things did not change, and this is where people get burned:

• Still collect a W-9 from every contractor, from the first dollar. Waiting until someone crosses $2,000 to ask for their tax details is how you end up in January chasing a vendor who's stopped answering. Get the W-9 signed before you cut the first check — it costs you nothing and saves you the scramble.
• Backup withholding still overrides the threshold. If you had to withhold federal tax from a contractor (usually because they never gave you a valid tax ID), you file a 1099-NEC no matter how little you paid them.
• The deadline didn't move. The 1099-NEC still goes to both the contractor and the IRS by January 31. Miss it and the penalties stack up per form.

1099-K: the $20,000 rule is back

This is the one that had every Etsy seller, weekend reseller, and Square merchant bracing for a flood of forms. The good news: it isn't happening. For 2026 — and, thanks to how the law was written, for 2025 too — the 1099-K threshold went back to what it was for over a decade. A payment app or card processor only has to send you a 1099-K if you clear more than $20,000 in payments AND run more than 200 transactions in the year. Both parts have to be true.

So the $600 and $2,500 numbers you may have read about? Set them aside. If you're a smaller seller who was dreading a 1099-K for a few hundred dollars of sales, that worry is off the table for now.

The trap almost everyone falls into

Here's the single most important thing on this page, and it's the part the headlines almost always skip. A higher threshold changes the paperwork, not the tax. If a contractor earns $1,500 from you in 2026, that money is still their taxable income — they just won't get a form reminding them of it. If your Square sales come in under $20,000, that revenue is still taxable — you just won't get a 1099-K listing it.

For years, a lot of small businesses quietly used the 1099 as their bookkeeping. If a form showed up, the income got reported; if it didn't, it was easy to forget. These higher thresholds pull that crutch away. Fewer forms will land in the mail, which means more of the responsibility for tracking what came in and what went out sits squarely with you and your records. In other words, the rules just made clean books more important, not less — because the IRS is stepping back from doing your record-keeping for you.

What to actually do, depending on your side

If you pay contractors

• Collect a signed W-9 from every contractor before you pay them the first time — not after they cross $2,000.
• Track what you pay each vendor across the whole year in one place, so you can see at a glance who crossed the line.
• Remember that payments you make through a card or app (say, paying a contractor via a business card) are generally captured on their 1099-K instead — you don't double-report them on a 1099-NEC.
• Put January 31 on the calendar now.

If you get paid through cards or apps

• Record every sale as it happens, from your own records — not from whatever 1099-K may or may not arrive next year.
• Keep your processor reports (Square, PayPal, Stripe) so your reported revenue matches what actually settled. If your deposits never seem to match your sales, that gap is worth closing before tax time, form or no form.
• Don't assume "no 1099-K" means "nothing to report." Report all of it.

One more thing: check your state

The numbers above are the federal rules, and this is where a lot of the "relief" gets complicated. Some states set their own, lower reporting thresholds and don't automatically follow the federal change — and it cuts both ways. If you pay contractors, you could owe a state filing on a payment that's under the federal $2,000 line. And if you sell through apps, a handful of states have their own low 1099-K thresholds, so you might still get a 1099-K even though you came in well under the federal $20,000. It's not something to guess at. If you're not sure where your state landed, that's a good question to bring to whoever files your return.

The bottom line

The paperwork got a little lighter for 2026: fewer 1099-NECs for small contractor payments, and no avalanche of 1099-Ks for smaller sellers. What didn't get lighter is the responsibility. Every dollar that came into your business is still income, whether a form documents it or not — and with fewer forms doing that documenting, the burden of proof quietly shifted onto your own records. If your books already tie out month to month, none of this should cost you a minute of worry. If they don't, this is the year that starts to show. That's the part I handle for the businesses I work with, so a rule change like this is a footnote for them instead of a fire drill.