Preparing for 2026: What the IRS’s Proposed 1099 Changes Mean for Businesses

Written by: Steven D. Lando, Partner & Co-leader of Anchin’s Law Firm Group

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. The long‑standing $600 reporting threshold will increase to $2,000 per payee per calendar year, with the threshold indexed for inflation in future years.

For professional service providers, these changes will materially reduce the number of Forms 1099 required to be issued and help clarify when payments should be reported on Form 1099‑NEC versus Form 1099‑MISC based on the nature of the payment.

Key Reporting Changes

Increased Reporting Threshold

• The aggregate annual reporting threshold increases from $600 to $2,000 per payee.
• Applies to payments reported under:
  • Form 1099‑NEC (Nonemployee Compensation)
  • Form 1099‑MISC (Miscellaneous Income)
• Threshold is measured on a calendar year basis (not taxable year).

Inflation Indexing

• Beginning after calendar year 2026, the $2,000 threshold will be adjusted annually for inflation, eliminating the need for future legislative action to update the amount.

Backup Withholding Alignment

• Backup withholding obligations are generally triggered only after payments exceed the same $2,000 (inflation‑adjusted) threshold, reducing withholding and reconciliation requirements for lower‑dollar vendors.

Distinguishing Form 1099‑NEC vs. Form 1099‑MISC

Form 1099‑NEC — Payments for Services

Form 1099‑NEC is used to report payments for services made in the course of a trade or business to non-employees, including fees paid to:

• Lawyers and law firms for legal services
• Accountants and other tax professionals
• Consultants and business advisors
• IT and technology service providers
• Marketing, advertising, and public relations firms

If aggregate service payments to a nonemployee equal or exceed $2,000 in a calendar year (beginning in 2026), Form 1099‑NEC is generally required unless a specific exception applies.

Anchin Observation: Payments made to attorneys or law firms for legal services, including hourly fees, retainers, co-counsel arrangements, fee splitting, and expert witness services, are generally reportable on Form 1099‑NEC. This is true even if the attorney or law firm is incorporated (including C- and S-Corporations).

Form 1099‑MISC — Certain Legal‑Related and Non‑Service Payments

Form 1099‑MISC is used to report non‑service payments, as well as specific categories of legal‑related payments that are subject to special attorney reporting rules, including:

• Rent payments
• Royalties
• Prizes and awards
• Taxable damages paid in connection with legal disputes
  (reported in Box 3)
• Gross settlement proceeds paid to attorneys, regardless of whether the attorney provided services to the payer (reported in Box 10)

Anchin Observation: Amounts reported on Form 1099‑MISC for settlements or damages are typically reported on a gross basis and are not reduced by attorney’s fees. The tax treatment and deductibility of those fees is a separate analysis. These payments are subject to the same increased $2,000 threshold starting in 2026.

Practical Impact for Law Firms and Service Providers

• Fewer 1099s issued and received: Many routine vendor and professional payments will now fall below the reporting threshold.
• Cleaner vendor onboarding: The need to collect and track Forms W‑9 for low‑dollar vendors will be reduced, if not eliminated.
• Reduced compliance costs: IRS estimates indicate tens of millions fewer Forms 1099‑NEC and 1099‑MISC will be filed annually.
• System updates required: Accounts payable, billing, and vendor management systems must be updated to reflect the higher threshold and calendar‑year aggregation.

Effective Date and Next Steps

• Effective for payments made on or after January 1, 2026
• Impacts 2026 calendar‑year payments reported in early 2027

Recommended Actions

• Update AP workflows and accounting software
• Review 1099 determination logic (NEC vs. MISC)
• Train finance and billing staff on the new thresholds

Threshold reminder: Beginning January 1, 2026, the reporting threshold is $2,000 per payee per calendar year, subject to inflation indexing in later years.

Although the regulations are technically proposed, they do not introduce new legal requirements. Instead, they update existing regulations to reflect statutory changes that are already in effect. As a result, businesses can apply the new $2,000 Form 1099 reporting threshold beginning in 2026 with minimal risk, even before the regulations are finalized.

For answers to Frequently Asked Questions on the new rules, click here. 

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.