One Big Beautiful Bill Act - OBBBA 1099 changes
Plain-English guide to OBBBA changes for 1099-NEC and 1099-K: what applies in 2025, what changes in 2026, and which states use lower 1099-K thresholds.
The One Big Beautiful Bill Act (OBBBA) changed the thresholds for Form 1099-NEC and 1099-K. Here’s what applies for the 2025 tax year, what changes in 2026, and how state rules may differ—explained in plain English for self-employed pros.
Quick Summary
- 1099-NEC in 2025: The familiar $600 threshold still applies for payments to independent contractors made by cash, check, or ACH.
- 1099-NEC in 2026: Threshold rises to $2,000 for payments made in 2026 (and will be indexed for inflation thereafter).
- 1099-K (apps & cards): Platforms like PayPal/Venmo revert to the longstanding rule: issue a 1099-K only if $20,000+ and 200+ transactions in a year.
- States can differ: Several states use lower 1099-K thresholds, so you may still receive a form even if the IRS doesn’t require one.
1099-NEC: Paying Independent Contractors
If your business pays an unincorporated contractor $600 or more for services during 2025 by cash, check, or ACH, you generally must issue Form 1099-NEC. (Certain professional payments—like to attorneys—can be reportable even when the payee is incorporated.)
- Penalty risk: Failing to file can trigger significant penalties, and intentional non-compliance is penalized more heavily.
- Worker classification: Misclassifying an employee as a contractor can lead to bigger issues than missing a form. When in doubt, ask us to review.
- 2026 change: The filing threshold increases to $2,000 for payments made in 2026 and will be indexed for inflation going forward.
- Backup withholding: Withholding rules align with the higher threshold when a contractor doesn’t provide a valid W-9/TIN.
Exception: If you pay a contractor by credit or debit card or through a third-party settlement organization (TPSO) like PayPal, those payments are not reported by you on 1099-NEC; they fall under 1099-K rules below.
1099-K: Payments Through Apps & Marketplaces
Many independent workers get paid via platforms such as PayPal, Venmo, Cash App, Etsy, Uber, Airbnb, Upwork, and similar services. Under OBBBA, we’re back to the established federal standard:
- A 1099-K is issued only if annual payments exceed $20,000 and there are 200 or more transactions in the calendar year.
- This federal standard applies beginning with the 2025 tax year and is retroactive to eliminate intermittent lower thresholds that were slated to phase in.
- Low-volume users may not receive a 1099-K—even if they earned several thousand dollars. That income is still reportable.
States with Lower 1099-K Thresholds
Some states require 1099-K filing at much lower amounts than the federal standard. If you live or work in one of these jurisdictions, you could receive a state 1099-K even when the IRS doesn’t require one.
| Jurisdiction | Threshold |
|---|---|
| Arkansas | $2,500 |
| District of Columbia | $600 |
| Illinois | $1,000 and 4+ transactions |
| Maryland | $600 |
| Massachusetts | $600 |
| Montana | $600 |
| New Jersey | $1,000 |
| North Carolina | $600 |
| Rhode Island | $100 |
| Vermont | $600 |
| Virginia | $600 |
Note: State laws change. We’ll check your state’s current rules during your appointment.
If You Pay Contractors
- Collect W-9s from every contractor before payment.
- Track how you pay: ACH/check (1099-NEC) vs. card/app (1099-K rules).
- Set a reminder to issue 1099-NECs for 2025 payments of $600+.
- Plan ahead for the $2,000 1099-NEC threshold starting in 2026.
- Ask us to review worker classification risks.
If You Receive 1099 Income
- Report all business income—even if you don’t get a 1099-NEC or 1099-K.
- Reconcile platform payouts (PayPal/Venmo/Etsy/etc.) to your books.
- Watch for state 1099-K forms with lower thresholds.
- Set aside funds for self-employment tax and estimates.
Need help with 1099s or contractor setup?
Ken-Mar Tax works with contractors, realtors, consultants, and small business owners every day. We’ll keep you compliant, reduce penalty risk, and help you make smart decisions about worker status and payment methods.
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