Which contractors get a 1099 now the threshold is $2,000 — and what a missing W-9 costs you

If you paid someone who is not an employee for services in the course of your trade or business, the reporting rule sits in 26 U.S.C. § 6041 and § 6041A. It does not care what the invoice was called — only about the size of the payment, the kind of payer and the kind of payee.

The threshold is $2,000, and it changed by payment date

Section 70433 of Pub. L. 119-21 substituted "$2,000" for "$600" in § 6041(a). The conforming amendments avoided repeating the number: § 6041A(a)(2) and the backup-withholding trigger in § 3406(b)(6)(A) now both read "the dollar amount in effect for such calendar year under section 6041(a)". The effective-date note is the part people miss — the amendment applies with respect to payments made after 31 December 2025.

The boundary is therefore a payment date, not a tax year of work: a December 2025 invoice settled in January 2026 falls under the new rule, while the 1099s that went out in January 2026 covered 2025 payments and were still on $600. From calendar year 2027 the figure is indexed to the cost-of-living adjustment under § 1(f)(3), so "$2,000" will not stay $2,000.

The threshold is not what decides your exposure

Here is the asymmetry that generic tax content leaves out. Failing to file a return is a penalty. Failing to withhold is a liability — the IRS can look to you for money you never held back.

Where a payee fails to furnish a taxpayer identification number, § 3406(a) says the payor "shall deduct and withhold" tax at the fourth-lowest rate under § 1(c) — currently 24%. Section 3403, in the same chapter, makes the withholding agent liable for tax required to be deducted. Publication 1281 states the consequence without hedging: "If you do not collect backup withholding from affected payees as required, you may become liable for any uncollected amount."

Section 3406(b)(6) is drafted as a list of alternatives. A payment is reportable for backup-withholding purposes if the year-to-date aggregate reaches the § 6041(a) amount, or if you were required to file a return for that payee for the preceding calendar year, or if you backup-withheld from them last year. A repeat contractor you 1099'd last year is in scope from the first dollar of this one, whatever the running total says.

What to do about a contractor you already paid

The sequence below is fixed by the forms and their dates rather than by preference, and it is what establishes reasonable cause if a penalty notice arrives later. That is the reason to run it even when the money has already gone out.

1. 1

   Request the W-9 before the first payment

   The IRS treats the initial solicitation as due when the transaction occurs. Form W-9 gives you the name, the TIN and — in the tax-classification box — whether the payee is a corporation at all.

2. 2

   Begin withholding at 24% if no TIN comes back

   Withholding starts on the reportable payment itself, not at year end. Deduct it and pay the contractor the remainder rather than netting it against a later invoice.

3. 3

   Make the first annual solicitation by 31 December

   A second written request, in the year the relationship began. This is what protects you from the missing-TIN penalty, and it is a date, not a nicety.

4. 4

   Deposit the withheld tax and file Form 945

   Backup withholding goes on Form 945, Annual Return of Withheld Federal Income Tax, with its own deposit rules. It does not travel on your income tax return.

5. 5

   File the 1099-NEC by 31 January regardless

   File with what you have. A return with a missing TIN attracts a smaller penalty than one that never arrived, and the withheld amount goes in the federal income tax withheld box.

6. 6

   Make the second annual solicitation by 31 December of the following year

   Required only if payments continue and the TIN is still missing. Two documented solicitations is the standard reasonable cause is measured against.

One preventative step is worth more than all six: make the W-9 a condition of the first payment rather than a January chore. It belongs with the independent contractor agreement and the first invoice, because that is the only moment you have leverage.

Who you do not have to send one to

Payments to a corporation are generally exempt, including an LLC that has elected to be taxed as a C or S corporation. The holes in that exemption catch people every year — and all of them are visible on the W-9 you were supposed to collect.

If you paid by card or through a platform, it is not your 1099

This one produces double reporting rather than under-reporting. Under § 6050W the entity that settles a card or third-party network transaction files Form 1099-K, and the IRS instructions for Forms 1099-MISC and 1099-NEC state that such payments "must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC or Form 1099-NEC".

So split the ledger by payment method before you total anything: a contractor paid partly by bank transfer and partly through a platform has two figures, and only one is yours. Do not assume every app is a settlement entity, either — some payment services take the position that they are not, which puts the payment back in your column.

NEC or MISC, and the two deadlines

Nonemployee compensation — the ordinary contractor, consultant or freelancer payment — goes on Form 1099-NEC, filed on or before 31 January. Form 1099-MISC carries rent, prizes, other income, medical payments and attorney gross proceeds, and is filed by 28 February on paper or 31 March electronically. One contractor can generate both: a designer you paid a fee and also rented studio space from is an NEC and a MISC.

Ten or more information returns in aggregate — 1099s and W-2s counted together — must be filed electronically, a threshold that dropped from 250 to 10 from tax year 2023. Small employers who used to post a few paper forms are now inside the rule, and the transmitter code the IRS requires can take weeks to issue.

What it costs to find out late

Section 6721 does not price a failure. It prices a delay: a reduced amount for returns corrected within 30 days of the due date, a middle amount for corrections made by 1 August, the full amount after that. The dollar figures are adjusted for inflation each year, so the ratios are the durable part.

Two things soften this. Section 6721(d) gives lower annual caps to businesses with average gross receipts of $5,000,000 or less, and § 6724 waives the penalty for reasonable cause where the failure was not wilful neglect — which is precisely what documented W-9 solicitations are evidence of. The IRS also runs a free TIN matching service, which turns "the name and number do not match" from a penalty notice into a five-minute check.

Where your facts change the answer

This is federal reporting mechanics, not the whole compliance picture. Several states run their own 1099 filing requirements with different thresholds and due dates, and a state that has not adopted the federal figure will still expect the smaller payments. Payments to a non-US person are a different regime again — Form W-8 rather than W-9, and withholding under chapters 3 and 4. Nor does any of it touch the prior question: filing a 1099-NEC is not a determination that the worker was a contractor, and if the relationship looks like employment rather than contracting, the form is evidence about what you paid, not a defence about what they were.

The cheap end of all of this

Almost every expensive version of this problem starts with the same small omission: a payment made to someone whose taxpayer identification number nobody asked for. The threshold change is genuinely helpful — most one-off payments now fall out of the reporting requirement — but it does not touch that omission, and for a repeat contractor it may not move the withholding question at all.

So the useful habit is not tracking who crossed $2,000. It is refusing to send the first payment without the W-9, in the same way you would not send it without an invoice. Put it in the engagement terms alongside the payment schedule, and the January reconciliation becomes arithmetic instead of an archaeology project.