Understanding the Changes in 2026 for Forms 1099
Updated: Oct 13
The reporting requirement for 1099-NEC and 1099-MISC increases from $600 to $2,000. After 2026, the $2,000 threshold will adjust annually based on inflation. This change applies to payments made in the course of a trade or business for services performed by nonemployees. Nonprofit organizations are also subject to these reporting rules. While the threshold may reduce the number of forms some organizations must file, it does not eliminate the need for proper vendor records.
Who Needs These Forms?
Form 1099-NEC is for independent contractors, freelancers, gig workers, and attorneys who provided services to your business or organization and received payment of $2,000 or more.
Form 1099-MISC is for individuals or entities paid $2,000 or more for miscellaneous business transactions, such as:
Rents
Prizes and awards
Medical/healthcare payments
Legal settlements (gross proceeds paid to an attorney)
Obtain Form W-9 Before Making Payments
The best time to obtain a completed Form W-9 is before the vendor or contractor receives their first payment. This form provides the payee’s legal name, business name, address, taxpayer identification number, federal tax classification, and certification. Collecting the form during onboarding is easier than trying to locate contractors after year-end or when it's time to file their 1099s.
Employee or Independent Contractor?
The Form W-9 does not determine if a worker is an independent contractor. A worker’s status depends on the actual relationship between the employer/company and the individual. This includes who has financial and behavioral control of the work being performed. If a company treats a worker like an employee, the government will classify them as an employee, regardless of the forms signed.
This issue is particularly important for nonprofits and churches that use interns, musicians, program staff, administrative workers, or other individuals whose work may be closely directed by the organization.
How Worker Status is Decided
Worker status is determined based on the relationship between the business and a worker, not what a contract says.
Financial control: Does the worker buy their own tools or supplies and risk a profit or loss? If they do, they are more likely a contractor.
Behavioral control: Does the company control how, when, and where the work is done? If it does, the worker is more likely an employee.
Relationship of the parties: Is there a written contract, and does the worker receive employee benefits like health insurance? If the answer is yes, they are more likely employees.
Review How Each Vendor Was Paid
Don’t worry about PayPal & credit card payments.
The total expense recorded in your books for a vendor is not always the amount that belongs on Form 1099-NEC or Form 1099-MISC. Payments made by check, cash, ACH, or direct bank transfer are treated differently from payments processed by credit cards or a third-party payment company. The IRS does not require taxpayers to report a Form 1099 for payments made by credit or debit card and third-party networks such as PayPal. These payments are reported by the card issuer or the third-party payment network on Form 1099-K. To prevent incorrect payments or duplication on Form 1099-NEC or Form 1099-MISC, businesses or organizations should distinguish between payment methods.
Do Not Assume Every Corporation Is Exempt
Payments to corporations are generally exempt from Form 1099 reporting, but exceptions apply. Payments for legal services may need to be reported to the IRS even if the law firm is incorporated. Payments to medical and healthcare providers and certain attorneys also have special rules.
Businesses or organizations should use the federal tax classification shown on Form W-9 rather than relying on a vendor’s name or the letters “LLC.” An LLC can have different federal tax classifications.
Rental payments to or through real estate agents or property managers are exempt. However, keep in mind that you need to issue a 1099 to a landlord you are paying rent, unless they meet another exception.
Complete a Contractor Review Before Year-End
Businesses and organizations should complete the following steps before the fourth quarter becomes too busy:
Generate a year-to-date vendor report. Identify contractors, consultants, landlords, attorneys, speakers, performers, and other reportable payees.
Request missing or outdated Forms W-9. Confirm that the legal name, address, taxpayer identification number, and tax classification are complete.
Review worker classification. Determine whether each individual is properly treated as an employee or independent contractor.
Separate payments by method. Distinguish checks, ACH payments, cash, and direct transfers from credit-card and third-party network payments.
Reconcile vendor totals. Investigate duplicate vendors, credits, reimbursements, and transactions posted to incorrect accounts.
Identify exceptions. Review payments to attorneys, medical providers, corporations, and vendors subject to backup withholding.
Prepare Now for a Cleaner January
The $2,000 threshold is an important change, but accurate reporting still depends on complete vendor records, proper worker classification, and reliable payment detail. Reviewing those areas now provides time to correct problems while vendors remain available and the transactions are easier to trace.
Mirror Accounting Services helps nonprofits, churches, and service-based businesses review contractor records, reconcile vendor payments, and prepare for year-end information reporting. If your organization is uncertain whether its contractor records are ready, contact us to identify the gaps and establish a more reliable process.
Mirror Accounting Services
Your Partner for success.
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