Nearing the tail end of my 13th tax season, I have written numerous articles for the Victoria Advocate covering a wide variety of topics. Many of the articles have focused on taxes, the IRS, and tax law. Few, if any, have been complimentary of the tax code, the practicality of the tax system, or the government agencies responsible for administering it.
After all these years and articles, I finally have an opportunity to discuss a positive change to tax compliance. Specifically, I am referring to the recent increase in Form 1099 reporting thresholds.
History of Form 1099 Reporting
The origins of Form 1099 reporting requirements can be traced back to the War Revenue Act of 1917. Under this legislation, reporting requirements established the framework for the modern Form 1099 system.
Form 1099 is a system to alert the IRS that a recipient has received income that should be reported on their tax return. To remain tax compliant, businesses commonly issue Form 1099-NEC to independent contractors, freelancers, and other non-employees who are paid for services above specified dollar thresholds. Receiving Form 1099 does not necessarily mean additional tax is owed but does ensure that these types of payments are reported, as required, on to a recipient’s tax return.
Several other types of Form 1099 reporting also exist. Common examples include Form 1099-MISC for rent payments, Form 1099-INT for interest income, and Form 1099-DIV for dividend income. Each category carries its own reporting requirements and thresholds.
Form 1099 reporting originally began with an $800 threshold. In 1954, tax law was revised to establish a $600 reporting threshold for rent payments and independent contractor compensation, among other revisions. Remarkably, that $600 threshold remained unchanged for more than 70 years. It was never increased, not even adjusted for inflation. As you can imagine, the administrative burden with compliance associated with this threshold has become increasingly tedious over time.
The $600 annual threshold remained in place until the enactment of the One Big Beautiful Bill Act (OBBBA) of 2025.
1099 Requirements Under the One Big Beautiful Bill Act of 2025
Under OBBBA, beginning with tax year 2026, the annual reporting thresholds for Form 1099-NEC and certain Form 1099-MISC payments, including rents, other income, medical and health care payments, and crop insurance proceeds, have increased to $2,000. In addition, these thresholds will be indexed annually for inflation. For everyday businesses, this change makes compliance far more manageable and brings the reporting threshold closer to in line with modern economic realities.
On the other hand, there may be an argument that higher thresholds create a greater risk that taxpayers could fail to report income properly.
Only time will tell how significant that risk may be. However, I would venture to guess that the IRS may ultimately come out ahead if it can reduce the resources required to process and manage millions of low-dollar information returns each year.
2026 Compliance and Beyond
Businesses should continue using IRS Form W-9 to obtain the necessary payee information to prepare any required Forms 1099. In my experience, collecting this information before making payment is far easier than trying to obtain it later.
Moving forward, business owners should pay attention to the annual inflation adjustments to ensure the proper reporting thresholds are applied when preparing Forms 1099 each January.
Additionally, consider hiring a Certified Public Accountant (CPA) to help manage your business compliance obligations. Forms 1099 represent only one piece of the annual compliance puzzle that business owners must navigate. Having a CPA as a strategic partner can provide peace of mind, reduce the risk of penalties related to reporting requirements, and allow you to focus more of your time and energy on running your business. Chris Laughhunn, CPA, CFP® is a Tax & Accounting Principal for Keller & Associates CPAs, PLLC and Lead Advisor for Keller Wealth Advisors.
Chris Laughhunn, CPA, CFP® is a Tax & Accounting Principal for Keller & Associates CPAs, PLLC and Lead Advisor for Keller Wealth Advisors.