If you work with independent contractors, you may have heard that the federal 1099 reporting threshold has increased from $600 to $2,000. That change may mean your business will have fewer 1099-NEC forms to prepare. But it doesn't mean you can stop tracking contractor payments or maintaining your bookkeeping records.
The reporting threshold changed. Your bookkeeping responsibilities did not.
What Is Form 1099-NEC?
Form 1099-NEC is used to report payments made to non-employees for services performed as part of your business.
This could include payments to:
- Independent contractors
- Freelancers
- Consultants
- Bookkeepers
- Graphic designers
- Web developers
- Virtual assistants
For years, businesses generally had to issue a Form 1099-NEC when they paid an unincorporated contractor $600 or more during the calendar year, subject to certain exceptions.
What Changed With the 1099-NEC Threshold?
Beginning with payments made after December 31, 2025, the federal reporting threshold increased from $600 to $2,000.
For example, if your business pays an independent contractor $1,500 during 2026, you would generally not be required to issue that contractor a federal Form 1099-NEC.
Beginning after 2026, the threshold will also be adjusted periodically for inflation.
At first, this might sound like one less thing to worry about at tax time but there is an important distinction to understand.
Your Bookkeeping Responsibilities Haven't Changed
The increase in the reporting threshold does not mean you should stop tracking contractor payments below $2,000. Even though the reporting requirement changed, the need to maintain documentation for your business expenses did not.
Whether you pay someone $100, $800, $1,900, or $10,000, you should still keep records showing:
- Who you paid and why
- How much and whey you paid
- Documentation supporting the payment
This could include invoices, receipts, contracts, or payment confirmations. If you're ever audited, you still need to be able to support the expenses you deducted on your tax return. The IRS doesn't stop asking questions simply because a 1099 wasn't required.
No 1099 Doesn't Mean No Income
There's another misconception that is important to clear up. You may hear someone say, "If I don't receive 1099, I don't have to report the income."
That's not correct.
The business making the payment is responsible for determining whether it needs to issue a 1099. The person receiving the payment is responsible for reporting their taxable income. Whether a contractor receives a 1099 or not, they are still responsible for reporting taxable income on their tax return.
No form does not mean no taxes.
Why You Should Still Collect W-9s
One thing I would not change because of the new threshold is collecting a Form W-9 from your contractors. A W-9 gives you important information about the person or business you're paying, including their legal name, taxpayer identification number, and tax classification. Even if you don't expect a contractor to reach $2,000 during the year, it's much easier to collect this information before you make payments than to try to find the contractor months later. Contractors can change phone numbers, move, or simply stop responding. Getting the W-9 upfront helps prevent that problem.
State Requirements May Be Different
Federal rules aren't always the whole story. Some states have their own filing requirements and may not immediately adopt the new federal reporting threshold. If you're only looking at the federal $2,000 threshold, you could potentially miss a state requirement. This is another reason why keeping complete contractor records is so important.
Keep Your Bookkeeping Process Simple
So, should you completely change the way you handle contractor payments?vI wouldn't recommend it.
Instead, continue doing what you've been doing:
- Track every contractor payment.
- Collect W-9s.
- Reconcile your bookkeeping each month.
- Store invoices and receipts electronically.
When tax season arrives, you'll already have the information you need. You'll know which contractors exceeded the reporting threshold, and your records will be organized and easier to review.
Make the 1099 Changes Work for You
The new $2,000 federal reporting threshold may reduce the number of 1099-NEC forms some businesses need to prepare, but it shouldn't change the way you maintain your bookkeeping records. Keeping accurate records throughout the year makes tax preparation easier, helps support your business deductions, and gives you a clearer picture of where your money is going.The goal of good bookkeeping isn't simply to meet a reporting requirement.
It's about protecting your business.
If you're not sure whether your bookkeeping system is keeping up with your business, reach out for help by calling 310-534-5577 or via email contact@abandp.com. At Affordable Bookkeeping & Payroll Services(opens in new tab), we work with business owners to keep their books organized and help them understand the financial information behind their business decisions.
Love Affordable Bookkeeping & Payroll? Leave them a 5 Star Review on their Incredible Towns Web page(opens in new tab).
