Preparing for 1099 Filing Season: What the OBBBA Means for 1099 K and Other Reporting Thresholds

As tax professionals and business leaders prepare for the upcoming 1099 filing season, the landscape is changing. The One Big Beautiful Bill Act (OBBBA) has recalibrated reporting thresholds for several 1099 forms, including the closely watched Form 1099K. Understanding these adjustments is critical for businesses, independent contractors, and platforms that process payments through third party networks.

The Role of 1099 Forms in Tax Compliance

The IRS uses 1099 forms to track non‑employee income. These forms help ensure accurate tax reporting and reduce underreported income. Some key forms include:

• 1099‑NEC: Reports non-employee compensation, primarily payments to independent contractors.
• 1099‑MISC: Captures miscellaneous payments, including rents, royalties, certain legal payments, and other income.
• 1099‑K: Reports payments processed by payment cards or third-party settlement organizations (TPSOs), like online marketplaces and payment apps, such as PayPal, Venmo, Stripe, or credit card processors.

While all 1099 forms are information returns, the operational complexity of compliance varies substantially depending on the form and volume of transactions.

Form 1099‑K in Focus

Form 1099K has garnered particular attention due to its intersection with the gig economy, marketplaces, and digital payment platforms. TPSOs are required to report gross payment volumes for goods or services to each payee that exceed certain thresholds. Historically, reporting was required if there was over $20,000 in aggregate payments and more than 200 transactions per year. Legislative changes under the American Rescue Plan Act temporarily lowered the threshold to $600 with no transaction limit, sparking concern among small-scale sellers and platforms.

The OBBBA reverses this change and retroactively restores the original federal threshold of $20,000 and 200 transactions, effective as of 2022. Practically, this significantly reduces reporting obligations for casual sellers and side-gig workers, thereby reducing the administrative burden for both platforms and recipients, while maintaining robust reporting for high-volume or high-dollar transactions.

Additional Key OBBBA Modifications to 1099 Reporting

In addition to the 1099K threshold reversion, the OBBBA introduced the following material alterations to 1099 related reporting:

1. 1099‑NEC and 1099‑MISC Threshold Adjustments:
   • Effective for payments in tax year 2026, the reporting threshold increases from $600 to $2,000.
   • Thresholds will subsequently be indexed for inflation, introducing a dynamic aspect to compliance planning.
2. Backup Withholding Adjustments:
   • Threshold changes also affect the initiation of backup withholding reporting, aligning with the updated reporting standards.
3. State-Level Considerations:
   • While the OBBBA addresses federal obligations, state-level requirements may diverge. Certain states may retain lower thresholds or maintain more stringent reporting requirements, requiring dual compliance monitoring.

Implications for Stakeholders

As the OBBBA reshapes 1099 reporting thresholds, stakeholders across the payment ecosystem must reassess compliance strategies. These changes carry operational, financial, and communication implications for businesses, contractors, and platforms alike.

Payors and Businesses

• Operational Adjustments: Systems and workflows must be recalibrated to reflect new thresholds, ensuring accurate aggregation of payments and transaction counts.
• Vendor Management: Even when filings are not triggered under the new thresholds, W9 collection and record retention remain essential for audit readiness.
• Compliance Oversight: Higher thresholds reduce volume but do not diminish potential penalties for misreporting or omission.

Independent Contractors and Freelancers

• Income Reporting Responsibility: Threshold changes do not relieve recipients from reporting all taxable income.
• Tax Planning: Anticipated 1099 issuance affects estimated tax calculations, cash flow planning, and documentation practices.

Payment Platforms and TPSOs

• Technical Implementation: Systems must accurately calculate both transaction counts and gross payment totals across multiple accounts and channels.
• User Communication: Clear guidance must be provided to users regarding reporting thresholds and potential tax obligations.

Strategic Considerations and Best Practices

Navigating the revised reporting landscape requires proactive planning and robust controls. By implementing the following strategic measures and best practices now, organizations can minimize risk, streamline compliance, and maintain transparency with all parties involved.

• Data Governance: Ensure robust tracking of payments to all vendors, including detailed transaction-level records.
• Threshold Monitoring: Implement automated alerts when payees approach reporting thresholds to streamline year-end compliance and ensure timely reporting.
• Stakeholder Education: Inform contractors, sellers, and platform users of threshold changes and ongoing reporting obligations.
• State Compliance Review: Conduct a jurisdiction-by-jurisdiction assessment to identify any discrepancies between federal and state reporting obligations.

For additional guidance on simplifying 1099 filings, see Anchin’s article, “Next Year’s 1099 Filing Starts Now: How to Simplify the Process Moving Forward.”

Conclusion

The OBBBA marks a significant shift in 1099 reporting requirements, particularly for Form 1099K and for lower-dollar non-employee compensation reported on 1099NEC and 1099MISC. While these adjustments ease filing burdens for payors and small-scale recipients, the core principle of comprehensive income reporting remains firmly in place.

Looking ahead, organizations, platforms, and individual taxpayers should prioritize updating systems, processes, and communication strategies to stay aligned with the new standards.  Taking these proactive measures will help maintain compliance, reduce administrative strain, and safeguard against audit exposure in the evolving post-OBBBA reporting environment.

For more information about the 1099 filing process or changes to 1099 filing requirements, please contact Anthony Carrella, Partner and Leader of Anchin’s CAS Group, or your Anchin Relationship Partner.