The One Big Beautiful Bill Act, signed July 4, 2025, restored the 1099-K reporting threshold to $20,000 and 200 transactions while raising the 1099-NEC and 1099-MISC threshold from $600 to $2,000 for payments made starting January 1, 2026. These changes reduce the number of forms most businesses need to file, but new requirements including a 10-return e-filing mandate and the transition from FIRE to IRIS mean startups need to update their compliance infrastructure now. State-level thresholds remain a hidden risk, with several states maintaining 1099-K thresholds as low as $600 regardless of the federal changes.
Key Takeaways
1099-K threshold restored to $20,000/200 transactions. The feared $600 threshold is dead. Third-party platforms like PayPal, Venmo, and Stripe only report when a payee exceeds both $20,000 in gross payments AND 200 transactions in a calendar year.
1099-NEC and 1099-MISC threshold rises to $2,000. Starting with payments made in calendar year 2026 (filed in 2027), businesses only need to issue these forms for payments of $2,000 or more. The $600 threshold still applies for tax year 2025 returns due in early 2026.
E-filing is mandatory for 10+ returns. If you file 10 or more information returns combined (W-2s, 1099s, 1098s), you must e-file everything. Paper filing when e-filing is required triggers penalties up to $340 per return.
FIRE shuts down December 31, 2026. The IRS is transitioning to the new IRIS system. Apply for your IRIS Transmitter Control Code now since processing takes 45 business days.
State thresholds don't match federal. Massachusetts, Maryland, Virginia, Vermont, and others maintain $600 1099-K thresholds. Rhode Island's threshold is just $100. Don't assume federal compliance covers state obligations.
The 1099-K Saga Finally Ends at $20,000
After four years of delays, confusion, and transitional thresholds, the 1099-K reporting threshold is back where it started. The American Rescue Plan Act of 2021 lowered the threshold for third-party settlement organizations (TPSOs) like PayPal, Venmo, eBay, Etsy, and Stripe from $20,000 in gross payments and more than 200 transactions down to just $600 with no transaction minimum. The IRS delayed implementation three times, issuing Notice 2023-10, Notice 2023-74, and finally Notice 2024-85, which set a transitional schedule: $5,000 for tax year 2024, $2,500 for 2025, and $600 for 2026 onward.
Section 70432 of the OBBBA wiped all of this away. The law reinstated the original $20,000-and-200-transaction threshold retroactively, meaning it applies back to tax year 2022. For tax years 2025 and 2026 and beyond, TPSOs need only file 1099-Ks when a payee exceeds both $20,000 in gross payments and 200 transactions in a calendar year. Both conditions must be met; either one alone does not trigger reporting. This threshold is not indexed for inflation and will remain fixed unless Congress acts again.
One practical wrinkle remains: because the OBBBA was signed on July 4, 2025, many TPSOs had already filed 2024 1099-Ks at the $5,000 transitional threshold by their January 31, 2025 deadline. Some taxpayers may have received 1099-Ks for amounts between $5,000 and $20,000 that technically would not be required under the restored threshold. The IRS addressed this in updated FAQs published after the law's passage.
An important distinction: payment card transactions (credit cards, debit cards, gift cards) remain subject to reporting with no minimum threshold. The $20,000/200-transaction rule applies only to TPSO transactions. Per-platform thresholds also apply separately, so payments across different platforms are not aggregated.
1099-NEC and 1099-MISC Thresholds Rise to $2,000
Section 70433 of the OBBBA raised the reporting threshold for Forms 1099-NEC and 1099-MISC from $600 to $2,000, effective for payments made on or after January 1, 2026. Starting in 2027, this threshold will be indexed for inflation annually. The House Ways and Means Committee estimates this change will eliminate more than one-third of all 1099-MISC paperwork.
For tax year 2025 (the returns businesses are filing right now in early 2026) the $600 threshold still applies. The $2,000 threshold kicks in only for payments made during calendar year 2026 (filed in early 2027). Applying the wrong threshold in either direction creates compliance risk: using $2,000 for 2025 payments means missed filings and potential penalties, while using $600 for 2026 payments means unnecessary administrative burden.
The backup withholding threshold also aligns with the new $2,000 level starting in 2026. The backup withholding rate itself remains at 24%, required when a payee fails to furnish a TIN, provides an incorrect TIN, or when the IRS sends a mismatch notification.
One noteworthy form change for 2025: excess golden parachute payments are now reported in 1099-NEC Box 3 rather than 1099-MISC Box 14, which is now reserved for future use.
Filing Deadlines Shift Because Weekends Fall on Key Dates
For tax year 2025 returns filed in 2026, January 31 and February 28 both fall on Saturdays, pushing several deadlines to the next business day. Here are the exact dates:
| Form | Recipient copies due | IRS paper filing | IRS e-filing |
|---|---|---|---|
| 1099-NEC | February 2, 2026 | February 2, 2026 | February 2, 2026 |
| 1099-MISC | February 2, 2026 | March 2, 2026 | March 31, 2026 |
| 1099-K | February 2, 2026 | March 2, 2026 | March 31, 2026 |
| 1099-INT, 1099-DIV | February 2, 2026 | March 2, 2026 | March 31, 2026 |
The 1099-NEC stands alone with a single unified deadline (February 2, 2026) for recipient copies, IRS paper filing, and IRS e-filing alike. No automatic extension is available for 1099-NEC via Form 8809. For other 1099 forms, Form 8809 provides an automatic 30-day extension for IRS filing (but not for recipient copies).
The electronic filing mandate now applies to any filer with 10 or more aggregate information returns across all types. This threshold, established by Treasury Decision 9972 in February 2023, counts W-2s, all 1099 variants, 1098s, and W-2Gs together. A business filing 6 W-2s and 5 1099-NECs has 11 total returns and must e-file everything. Paper filing when e-filing is required triggers penalties of up to $340 per return. Hardship waivers are available via Form 8508, which must be submitted at least 45 days before the filing due date.
FIRE Is Dying: IRIS Is Mandatory by 2027
The IRS is retiring its legacy FIRE (Filing Information Returns Electronically) system. For tax year 2025 filings (due in early 2026), both FIRE and the newer IRIS (Information Returns Intake System) are available. The FIRE system shuts down permanently on December 31, 2026, making IRIS the sole electronic filing system for tax year 2026 returns filed in 2027.
IRIS offers significant improvements over FIRE. It accepts XML/JSON data formats instead of FIRE's rigid 750-character ASCII flat files, provides real-time validation and TIN matching rather than delayed B-Notices months later, and supports targeted per-record corrections instead of requiring full file resubmission. The web portal accommodates filers with fewer than 100 returns, while an Application-to-Application (A2A) API serves high-volume filers.
Businesses must apply for a separate IRIS Transmitter Control Code (TCC). FIRE TCCs are not transferable, and the application typically takes 45 business days to process. All users must authenticate via ID.me accounts, and filers need a minimum of two Responsible Officials and two Contacts (with exceptions for sole proprietors).
Penalties Escalate Quickly for Missed or Incorrect Filings
IRS penalties under Sections 6721 and 6722 apply per form and increase based on how late the correction is made. For tax year 2025 returns filed in 2026:
| Filing timeline | Penalty per form | Small business cap |
| Within 30 days of deadline | $60 | $220,500 |
| 31 days late through August 1 | $130 | $660,500 |
| After August 1 or never filed | $340 | $1,320,500 |
| Intentional disregard | $680 minimum | No cap |
Small business caps apply to filers with average annual gross receipts of $5 million or less over the preceding three tax years. Penalties are assessed per form, and separate penalties apply for failure to file with the IRS and failure to furnish correct statements to recipients. This means a single record can generate up to $680 in combined penalties before intentional disregard is considered.
Reasonable-cause relief under Section 6724 remains available with proper documentation, but the IRS has been increasingly strict about enforcement. TIN mismatches trigger CP2100/CP2100A notices, and payers must make up to three solicitation attempts before backup withholding is required within 30 business days of a notice.
State Thresholds Create a Patchwork of Compliance Obligations
While federal 1099-K thresholds returned to $20,000/200 transactions, several states maintain significantly lower thresholds that businesses must track independently. This is perhaps the most overlooked compliance risk in the new landscape.
States with 1099-K thresholds well below the federal standard include Massachusetts, Maryland, Virginia, Vermont, Montana, and the District of Columbia, all at $600 with no transaction minimum. Rhode Island sets the lowest threshold at just $100. Illinois requires reporting at $1,000 and 4 or more transactions, while New Jersey uses a $1,000 threshold. A business that falls comfortably below the federal 1099-K threshold may still trigger reporting obligations in these states.
The IRS Combined Federal/State Filing (CF/SF) Program covers 30 participating states and simplifies compliance by forwarding federal 1099 data to state tax authorities. However, participation is deceptive. Many CF/SF states still require separate direct filing, particularly when state withholding is involved. Massachusetts participates in CF/SF but requires all 1099s filed directly with its Department of Revenue regardless, with a $100-per-return penalty for non-compliance. States outside CF/SF (including Illinois, Oregon, Pennsylvania, Virginia, and the District of Columbia) always require direct state filing.
Whether states will conform to the new federal $2,000 threshold for 1099-NEC and 1099-MISC starting in 2026 remains an open question. Businesses operating across state lines should monitor state-level guidance closely, as some states may retain their own lower thresholds.
What Startups Should Do Now
The combined effect of the OBBBA and the e-filing mandate creates a clear action list.
For tax year 2025 (due February 2, 2026 for 1099-NEC):
- Audit your W-9 files and verify TINs using the free IRS TIN Matching service
- Confirm e-filing readiness if you have 10 or more aggregate returns
- Remember the 1099-NEC deadline does not allow automatic extensions
For 2026 planning:
- Update accounting systems to reflect the new $2,000 threshold for 1099-NEC and 1099-MISC
- Continue collecting W-9s from all contractors regardless of expected payment amounts since annual totals are unpredictable
- Implement a strict "no W-9, no payment" policy in vendor onboarding
- Apply for an IRIS TCC now if you haven't already
The higher thresholds deliver meaningful administrative savings. Businesses paying numerous small-value contractors will issue significantly fewer forms, and the House Ways and Means Committee's estimate of eliminating one-third of 1099-MISC paperwork aligns with the reality that many contractor payments fall between $600 and $2,000. However, the e-filing mandate means even very small businesses (those with a handful of employees and a few contractors) likely exceed the 10-return aggregate threshold and need digital filing infrastructure.
FAQ
When does the $2,000 threshold take effect? The $2,000 threshold for 1099-NEC and 1099-MISC applies to payments made on or after January 1, 2026. For tax year 2025 payments (being reported now in early 2026), the $600 threshold still applies.
Does the $20,000 1099-K threshold apply retroactively? Yes. The OBBBA restored the $20,000/200-transaction threshold retroactively to tax year 2022, as if the American Rescue Plan's $600 threshold had never been enacted.
What if I already received a 1099-K for less than $20,000? Some TPSOs filed 2024 1099-Ks at the $5,000 transitional threshold before the OBBBA passed. While these forms may not have been technically required, the income is still taxable. Consult a tax professional about how to handle this on your return.
Do I still need to collect W-9s if I expect to pay a contractor less than $2,000? Yes. Always collect W-9s before making payments. Annual totals are unpredictable, and having the W-9 on file protects you if payments exceed the threshold. A "no W-9, no payment" policy is the safest approach.
What's the difference between FIRE and IRIS? FIRE is the legacy IRS e-filing system that uses rigid ASCII flat files. IRIS is the modern replacement that accepts XML/JSON formats, provides real-time validation, and supports targeted corrections. FIRE shuts down December 31, 2026, making IRIS mandatory for 2026 tax year filings.
Do state 1099-K thresholds match the federal $20,000 level? No. Several states including Massachusetts, Maryland, Virginia, Vermont, and others maintain $600 thresholds. Rhode Island's threshold is just $100. You must comply with both federal and state requirements.
What are the penalties for filing late? Penalties range from $60 per form if corrected within 30 days to $340 per form if filed after August 1 or never filed. Intentional disregard carries a minimum $680 penalty with no cap. Small businesses (under $5 million average gross receipts) have reduced maximum caps.
Can I still file 1099s on paper? Only if you file fewer than 10 total information returns (including W-2s, all 1099 types, 1098s, and W-2Gs combined). If you have 10 or more returns, e-filing is mandatory and paper filing triggers penalties.
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