The 1099 season checklist for businesses that pay contractors

What changed for 2026

The 2026 tax year is the first under a new reporting threshold. For payments made through 2025, you issued Form 1099-NEC or 1099-MISC once a payee reached $600 for the year. The One Big Beautiful Bill Act raised that to $2,000 for payments made after December 31, 2025, and the IRS instructions for 2026 forms reflect it. Starting with payments made in 2027, the $2,000 figure is adjusted for inflation each year.

That means the forms you file in early 2027 use the $2,000 test. A designer you paid $1,500 in 2026 no longer needs a 1099-NEC; one you paid $2,400 does. A few categories keep their own thresholds. Royalties on Form 1099-MISC are still reportable at $10, and direct sales of $5,000 or more of consumer products for resale are still reportable.

The threshold for backup withholding moved with it. Backup withholding, at 24%, generally applies to reportable payments once the payee crosses the $2,000 threshold and hasn’t given you a valid taxpayer identification number (TIN).

Before you pay anyone

Most 1099 problems start at onboarding. Fix the process there and January gets easy. A higher threshold doesn’t change this step. You still need the information in case a payee crosses $2,000, and you won’t know that on day one.

• Collect a Form W-9 from every contractor before the first payment. It gives you their legal name, tax classification, address, and TIN.
• Check that the name and TIN match. The IRS offers a TIN Matching program to businesses that file information returns, and running it before January avoids most error notices later.
• Note the tax classification box. Payments to corporations are generally exempt, but payments for legal services and certain medical and health care payments are reportable even when the payee is incorporated.
• If a contractor won’t provide a TIN, you may be required to withhold 24% from payments once the backup withholding threshold applies. Don’t pay first and chase the form later.
• Confirm the person is actually a contractor. Issuing a 1099 doesn’t decide that; the working relationship does.

Track payments the way the IRS counts them

Set up your books so every contractor payment is tagged by payee and payment method. That single habit turns January into a report you run, not a research project.

The payment method matters because it decides who reports. Payments you make by check, ACH, or wire generally count toward your 1099-NEC or 1099-MISC totals. Payments made with a credit card, debit card, or through a third-party payment network are reported by the processor on Form 1099-K, and you should leave them off your own forms. That prevents the same income from being reported twice.

• Separate reimbursed expenses from fees if your agreements treat them differently, and be consistent year to year.
• Watch for payees with multiple vendor records, which can split one person’s total across two entries and hide that they crossed the threshold.
• Tag rent, legal settlements, prizes and similar items separately. They usually belong on Form 1099-MISC, not 1099-NEC.
• For third-party network payments, the 1099-K threshold was restored to more than $20,000 and more than 200 transactions per payee. That’s the processor’s filing, not yours, but it explains why some contractors never receive one.

A worked example

Say a consulting firm paid five outside people in 2026. A bookkeeper received $4,800 by ACH. A web developer received $1,900 by check. A photographer received $3,000, all through a card-based payment app. An incorporated IT firm received $12,000 by ACH. A law firm, also incorporated, received $6,500 for contract review.

The bookkeeper gets a 1099-NEC for $4,800. The developer gets nothing, because $1,900 is under $2,000. The photographer gets nothing from you, because card and payment-app payments are reported on Form 1099-K by the processor. The IT firm is generally exempt as a corporation. The law firm gets a 1099-NEC for $6,500, because legal services are reportable even to corporations.

Under the old $600 rule, the developer would have received a form too. The firm files two forms instead of three, but it still needed a W-9 from all five payees to reach that answer.

A fall review: October and November

The best time to fix 1099 problems is before year-end, while contractors still answer your emails. A short review now saves a scramble later.

Run a year-to-date report of payments by payee. Anyone already above $2,000, or on pace to cross it, should have a complete W-9 on file. Anyone missing one gets a request now, not in the third week of January.

• Match each payee’s legal name to the name on their W-9, not their trade name or invoice header.
• Flag payees whose W-9 is more than a few years old or whose business has changed form, for example a sole proprietor who formed an LLC or elected S corp status.
• Confirm which vendors you paid by card or through a payment app so you can exclude those amounts.
• Decide now whether you’ll file through your accounting software, a filing service, or the IRS’s free IRIS portal, and make sure you have access.

The January deadlines for 2026 forms

Form 1099-NEC is normally due to both the contractor and the IRS by January 31. In 2027, January 31 falls on a Sunday, so forms reporting 2026 payments are due Monday, February 1, 2027. There is no automatic extension for 1099-NEC, so treat that date as fixed.

Form 1099-MISC has a split schedule. Recipient copies follow the same early deadline. The IRS copy is due by February 28 if you file on paper (March 1 in 2027, since February 28 is a Sunday), or March 31 if you file electronically.

If you file 10 or more information returns in total for the year, counting W-2s and all 1099 types together, you must file electronically. Plenty of small businesses cross that line once payroll is added.

• Send recipient copies by the due date, electronically if the contractor has consented.
• File the IRS copies and keep the confirmation.
• Check your state. Many states require their own 1099 filing, and some have different deadlines or require the filing even when the federal Combined Federal/State program would otherwise cover it.

What mistakes cost

Information return penalties are charged per form and scale with how long a mistake sits. For returns required to be filed in 2027, which covers 2026 Forms 1099, the per-return penalty is $60 if you correct it within 30 days of the due date, $130 if you correct it after that but by August 1, and $340 after August 1 or if you never file. Intentional disregard starts at $690 per return with no annual cap.

Those penalties generally apply twice: once for the copy that should have gone to the IRS and once for the copy that should have gone to the contractor. Ten forms filed in September instead of February can mean $6,800 in penalties before any relief.

After filing: corrections and IRS notices

If a contractor flags a wrong amount or TIN, file a corrected form promptly. Quick fixes fall into the lower penalty tiers.

If you receive a CP2100 or CP2100A notice, the IRS is telling you a name and TIN you reported don’t match its records. That notice starts a clock for sending the payee a B-notice and, if the mismatch continues, beginning backup withholding. Don’t file it away.

Keep W-9s, payment records and filing confirmations with your tax files. If you pay many contractors or pay people in several states, a professional review in the fall catches most problems before they become penalties. At Tally Tax, that review usually starts with the payee report and the W-9 file side by side.

Frequently asked questions