The tax landscape is shifting again, and this time, it’s courtesy of the One Big Beautiful Bill Act (OBBBA). OBBBA is a sweeping piece of legislation that brings long-overdue updates to the rules governing Form 1099-NEC and Form 1099-MISC. It raises the reporting threshold for Form 1099-MISC and Form 1099-NEC from $600 to $2,000, effective for payments made after Dec. 31, 2025.

Major tax law changes

Historically, businesses were required to file Form 1099-MISC and Form 1099-NEC for payments of $600 or more to service providers, freelancers, landlords and other non-employees. This threshold had not changed for decades and was not indexed for inflation, resulting in an ever-increasing compliance burden as nominal payment amounts rose.

Starting with payments made after Dec. 31, 2025, the OBBBA raises the reporting threshold from $600 to $2,000. This means that businesses will only need to issue Forms 1099-MISC or 1099-NEC if aggregate payments to a payee in a calendar year exceed $2,000. Beginning in 2027, the new law also introduces an annual inflation adjustment for the threshold, ensuring that the reporting requirement keeps pace with economic realities.

Provisions for tax preparers

• Increased reporting threshold: The $2,000 threshold applies to all payments reportable under §6041(a), including non-employee compensation and other payments typically reported on Forms 1099-MISC and 1099-NEC.
• Inflation adjustment: The threshold will be indexed for inflation annually, using 2025 as the base year. Adjustments will be rounded to the nearest $100.
• Remuneration for services: The new threshold also applies to payments for services under §6041A(a)(2), affecting independent contractors and similar arrangements.
• Backup withholding: The definition of “reportable payment” for backup withholding under §3406(b)(6) is updated to reference the new, inflation-adjusted threshold.
• Conforming amendments: The law updates terminology to refer to “calendar year” instead of “taxable year” and changes the heading of §6041(a) to “exceeding threshold.”

Tax preparer guide to the OBBBA

As a tax professional, you should take the following steps to prepare for the new law:

• Update client communication: Inform clients about the new $2,000 reporting threshold and the impact on their Form 1099 filing obligations. Many small businesses and sole proprietors will see a reduction in the number of forms they need to file.
  Tip: NATP members have access to a series of client newsletters to download and share.
• Review vendor payment processes: Encourage clients to review their vendor and contractor payment records to ensure compliance with the new threshold. Payments below $2,000 in a calendar year will no longer trigger a 1099 filing requirement.
• Adjust backup withholding procedures: Update internal procedures to apply backup withholding only when payments exceed the new threshold.
• Monitor inflation adjustments: Stay current on annual inflation adjustments to the threshold, as these will affect reporting requirements in future years.
• Update software and systems: Ensure that accounting and tax preparation software is updated to reflect the new thresholds and reporting rules.

Comparison of old vs. new rules

Before OBBBA, H.R.1 (pre-2026)

Businesses had to file Form 1099-NEC or Form 1099-MISC for any service provider who paid $600 or more in a year.

• The $600 threshold was not adjusted for inflation and had been unchanged for decades.
• Small payments to freelancers, landlords and contractors often triggered reporting requirements, increasing compliance burdens.
• Backup withholding applied at the same $600 level if payees failed to provide correct TINs.

Example of the old rule:

If eBay paid Viana, who is a freelance graphic designer, $800 a year for selling products, it had to issue Form 1099-NEC to her.

After OBBBA, H.R.1 (starting 2026)

• The threshold rises to $2,000 for a calendar year.
• Inflation adjustments ensure the threshold remains relevant over time.
• Fewer small payments will require reporting, reducing paperwork, and filing costs.
• Backup withholding thresholds now align with the higher reporting thresholds.

Example of the new rule:

If eBay paid Viana, who is a freelance graphic designer, $800 in a calendar year, then eBay will not be issuing Viana Form 1099-NEC, since it’s below the new $2,000 threshold.

Provision	Prior law (pre-OBBBA)	OBBBA ( §70433) changes
Reporting threshold	$600	$2,000 (indexed for inflation)
Inflation adjustment	None	Yes, for years after 2026
Remuneration for services	$600 threshold	New threshold applies
Backup withholding	$600 threshold	New threshold applies
Effective date	N/A	Payments after Dec. 31, 2025

Preparing for the new Form 1099 landscape

The One Big Beautiful Bill Act represents tax simplification reporting for businesses and tax professionals. By raising the reporting threshold and indexing it for inflation, the law reduces compliance burdens and aligns reporting requirements with current economic conditions. Tax professionals should take this opportunity to update their practices, educate clients and implement efficient tax planning strategies.

Stay informed, stay proactive and help your clients navigate the new landscape with confidence.