1099 Rules Are Changing:
What Every Small Business Owner Needs to Know
Selecting the right business structure is only half the battle; understanding how each entity interacts with the IRS is critical for maintaining compliance and avoiding costly penalties. Building on our guide to Setting up a Business in the USA, this overview breaks down the tax obligations for each major corporate structure.
If you run a business and pay anyone who isn’t your employee, there’s a decent chance you owe them a 1099 form — and a decent chance the rules around it are about to change too. Here’s a plain-English breakdown of what’s required today, what’s changing, and how to stay ahead of it.
The Two Forms Most Businesses Deal With
Form 1099-NEC is the one you’ll run into most often. It’s used to report nonemployee compensation. If you paid a freelancer, consultant, contractor, or any individual or unincorporated business $600 or more in a calendar year for services, you generally need to issue a 1099-NEC.
Form 1099-MISC covers a different bucket of payments — things like rent, prizes and awards, and certain legal settlements — also at the $600 threshold under current rules.
What's Excluded, No Matter the Amount
A few payment types are excluded from these forms regardless of dollar amount:
- Payments to corporations are generally exempt — with one notable exception: payments to attorneys for legal services require a 1099 regardless of whether the law firm is incorporated.
- Payments made by credit card or through a third-party platform (PayPal, Venmo, etc.) for business purposes are excluded from 1099-NEC and 1099-MISC reporting. Those get reported separately by the payment processor on Form 1099-K instead.
Deadlines Are Easy to Mix Up
- 1099-NEC: due to both the recipient and the IRS by January 31.
- 1099-MISC: due to the recipient by January 31, but the IRS filing deadline is later — February 28 if filing on paper, or March 31 if filing electronically.
Missing these dates can trigger penalties, so it’s worth putting them on your calendar now rather than scrambling in January.
The Big Change: Reporting Thresholds Are Going Up
Here’s the update worth paying attention to. The One Big Beautiful Bill raised the reporting threshold for both 1099-NEC and 1099-MISC from $600 to $2,000, starting with payments made in 2026 (meaning it first shows up on forms filed in early 2027).
Important: if you’re dealing with 2025 payments, the existing $600 threshold still applies. This change hasn’t kicked in yet.
Separately, the threshold for Form 1099-K — the one payment processors use — has been reset back to $20,000 and 200 transactions, undoing a lower threshold that had been phased in over recent years.
