Tax update · Business Owners
Fewer 1099s to File: What the New $2,000 Threshold Means for Your Business
Amanda Taraborelli, CPA · September 29, 2026
For the first time in decades, the federal 1099 reporting threshold is moving. Starting with payments you make in 2026, you only need to issue a 1099-NEC or 1099-MISC once you pay a person or business $2,000 or more in the year. It used to be $600.
That means fewer forms for a lot of small businesses. It doesn’t mean you can stop paying attention.
What changed federally
The new $2,000 threshold applies to payments made after December 31, 2025. The first 1099s under the new rule are the ones you’ll file in early 2027 for 2026 payments. Your 2025 forms still follow the old $600 rule.
How the threshold works
The $2,000 is measured across the whole year for each vendor, not per invoice. If you paid a contractor $700 in March and $1,500 in September, that’s $2,200, and a 1099 is due.
What didn’t change
- Get a W-9 from every vendor anyway. If a payee crosses the threshold and you never collected a taxpayer ID, backup withholding kicks in, and you can end up owing that 24% yourself.
- Your deductions are the same. A payment below the threshold is still deductible with good records, and the contractor still owes tax on every dollar.
- Worker classification rules are the same. A higher reporting threshold doesn’t change whether someone is a contractor or an employee.
What about Pennsylvania?
Pennsylvania follows the federal filing requirement. If you’re required to file a federal 1099-NEC or 1099-MISC and it reports Pennsylvania-source income, you send a copy to the Department of Revenue by January 31 (February 1, 2027, for 2026 forms, since January 31 falls on a Sunday). If you aren’t required to file the federal form, there’s nothing to send to Pennsylvania.
What that means in practice: the higher federal threshold shrinks your Pennsylvania filings too. A vendor paid under $2,000 generally triggers neither a federal 1099 nor a state copy. The exception is backup withholding: if you actually withheld federal backup withholding from a payee, a 1099 is required regardless of the amount, and that form would go to Pennsylvania as well if it reports Pennsylvania-source income.
Nonresident withholding still applies. When a federal 1099 is required for Pennsylvania-source compensation paid to a nonresident individual, or to a single-member LLC with a nonresident owner, Pennsylvania income tax must be withheld. Withholding is optional if you pay that person less than $5,000 for the year. You should not withhold from corporations, partnerships, S corporations, or multimember LLCs, who can give you a withholding exemption certificate (REV-1832).
If you do withhold, you need a Pennsylvania withholding account, and you file quarterly returns, remit the tax, and file the annual REV-1667 reconciliation through myPATH.
Your quick update checklist
- Update the 1099 threshold setting in your accounting software. Many systems default to $600 and need a manual change.
- Keep collecting W-9s at vendor onboarding, before the first payment goes out.
- Track total payments by vendor through the year, and flag any vendor who lives outside Pennsylvania but does work here.
- Separate attorney fees and royalties from your general contractor list, since they keep their lower thresholds.
- If you pay nonresident individuals for Pennsylvania work, collect a W-9 or a REV-1832 up front and set up your myPATH withholding account before the first payment, not in January.
- Mark your calendar: the federal threshold adjusts for inflation starting in 2027, so the number won’t stay at $2,000.
Let’s talk before year-end
Want us to review your vendor list, W-9 process, and Pennsylvania withholding setup before year-end? It’s a quick fix now and a much bigger headache in January.
Amanda Taraborelli, CPA
Manada Tax Service, PC