Articles & Alerts
FAQs: New 1099 NEC and 1099 MISC Rules Beginning in 2026
The IRS has issued proposed regulations implementing statutory changes that significantly increase the federal information reporting threshold for Forms 1099‑NEC and 1099‑MISC. Effective for payments made on or after January 1, 2026, these changes are intended to reduce administrative burden while clarifying reporting requirements for service and non‑service payments.
The FAQs below address key questions businesses should understand as they prepare for implementation.
- What changed starting in 2026?
The IRS increased the information reporting threshold from $600 to $2,000 per payee per calendar year for Forms 1099‑NEC and 1099‑MISC. The change applies to payments made on or after January 1, 2026, and the threshold will be indexed for inflation in later years.
- Does the new $2,000 threshold apply separately to each form?
No. The same $2,000 calendar‑year threshold applies to all reportable payments under either regime (1099-NEC or 1099-MISC). Once aggregate payments to a payee exceed the threshold, reporting is required on the appropriate form.
- When should Form 1099‑NEC be used?
Form 1099‑NEC is used to report payments for services performed in the course of a trade or business by a nonemployee, including:
- Legal services
- Accounting and tax services
- Consulting and advisory services
- Technology, marketing, and other professional services
If service payments to a vendor reach or exceed $2,000 in a calendar year (beginning in 2026), Form 1099‑NEC is required unless an exception applies.
- When should Form 1099‑MISC be used?
Form 1099‑MISC applies to non‑service payments, such as:
- Rent
- Royalties
- Certain legal settlements and damage payments
- Prizes and awards
- Other miscellaneous income
These payments are now subject to the same $2,000 threshold starting in 2026.
- How are payments to law firms reported?
- Legal fees for services are generally reported on Form 1099‑NEC, even if the law firm is a corporation.
- Settlement or damage payments may be reportable on Form 1099‑MISC, depending on the facts and payment structure.
The increased $2,000 threshold applies in either case.
- Is the threshold measured by tax year or calendar year?
The threshold is measured on a calendar‑year basis. Payors must aggregate all payments made to the same payee during the calendar year to determine whether reporting is required.
- Does this change affect backup withholding?
Yes. Backup withholding obligations generally arise only once the same $2,000 (inflation‑adjusted) threshold is exceeded.
- Will businesses issue fewer 1099s?
Yes. The IRS estimates tens of millions fewer Forms 1099‑NEC and 1099‑MISC will be filed annually as a result of the higher threshold, significantly reducing administrative burden—particularly for professional services firms.
- What should firms do now?
- Update accounts payable and billing systems
- Review vendor classification and 1099 determination logic
- Train finance and billing personnel on NEC vs. MISC distinctions
- Prepare for implementation for 2026 payments reported in 2027
For more information, please contact Steven D. Lando, Partner and Co-leader – Law Firm Group, Deborah L. de Vries, Partner and Co-leader – Law Firm Group, or your Anchin Relationship Partner.
