Businesses Should Prepare for Changing IRS Reporting Requirements

Over a certain amount, payments made in the course of a trade or business must be reported to the payees and to the IRS, using a specific form. The recently enacted One Big Beautiful Bill Act (OBBBA) made changes to some widely used IRS forms. Here’s a breakdown for business owners.

Form 1099-MISC

Businesses must report a variety of non-wage miscellaneous payments that exceed a certain amount on Form 1099-MISC, “Miscellaneous Information.” Generally, these are payments made to individuals, partnerships or unincorporated entities. Examples include rents, prizes and awards; certain unclassified compensation or remuneration; and other fixed gains, profits or income.

Currently, the threshold that triggers the issuance of this form is $600 per year per recipient. But thanks to the OBBBA, this amount will rise to $2,000 starting with the 2026 tax year. Then, beginning in 2027, the threshold will be adjusted annually for inflation. This should mean a substantial and welcome reduction of the reporting burden for many businesses.

What isn’t reported on a Form 1099-MISC? Examples include gifts, payments for medical or legal services, wages, benefits and reimbursements.

Form 1099-NEC

Businesses need to report payments to certain workers on Form 1099-NEC, “Nonemployee Compensation.” Examples include disbursements to independent contractors, freelancers or gig workers in the course of a trade or business.

As is the case for Form 1099-MISC, the reporting threshold for Form 1099-NEC for 2025 is $600 per year per recipient. But again thanks to the OBBBA, this amount rises to $2,000 for 2026 and will be adjusted annually for inflation starting in 2027.

Although businesses won’t be required to issue Form 1099-MISC for payments below the threshold beginning in 2026, payees who don’t receive the form must still report their income to the IRS. After all, such income will remain taxable.

Form 1099-K

Mobile payment service providers — such as PayPal, Venmo, Square and Cash App — must file Form 1099-K, “Payment Card and Third Party Network Transactions” with the IRS when a seller using their services receives payments exceeding a set threshold. Generally, they provide a copy of the form to the seller as well.

The threshold had been scheduled to be $2,500 for 2025 and only $600 for 2026 and beyond, regardless of the number of transactions. However, the OBBBA returns the threshold for issuing Form 1099-K to $20,000 from more than 200 transactions during the year, retroactive to 2021.

The payment platform must identify and separate transactions by type. Payments not reported on the form include personal transactions, such as gifts and reimbursements.

Backup withholding

Backup withholding may be required when a payee fails to submit or accurately complete Form W-9, “Request for Taxpayer Identification Number and Certification.” It’s also necessary if IRS notifies you of the need to do backup withholding. The amount to withhold is 24%, which must be remitted to the IRS. The backup withholding is then reported on:

Form 1099-MISC for amounts associated with rents, prizes, awards, medical payments, etc.,
Form 1099-NEC for amounts associated with payments to nonemployees, such as independent contractors and freelancers, or
Form 1099-K for transactions related to third-party payment networks (though this rarely occurs).

You must issue the appropriate Form 1099 to both the payee and the IRS by January 31 of the following year.

Adjustments ahead

Prepare now for these changes. You might need to adjust your systems to track total payments by recipient, collect accurate W-9s, and stay ahead of IRS filing deadlines. The rising thresholds may reduce your reporting burden — but not your responsibility to track and report all taxable income.