What is the OBBBA — and Why 1099 Reporting Is Changing
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. Among many provisions affecting individual deductions, standard deduction amounts, and other tax-code items, OBBBA substantially overhauled the reporting thresholds for certain IRS “1099” information returns.
I wrote an earlier Blog on this topic, but I want to revisit it as this is an important change affecting both the businesses that make payments subject to these rules, and for recipients who will receive these forms.
These changes are significant for small businesses, freelancers, gig workers (like UBER and LYFT drivers), landlords, and any person or entity making or receiving non-W-2 payments — because they affect when payors are required to issue 1099 forms, and thus when third-party reporting to the IRS is triggered.
As a heads-up, for payments made in 2025, the only change made by the OBBBA was to the 1099-K filing threshold. The $600 annual total amount remains unchanged for payments made during 2025 (meaning, 1099-NEC and 1099-MISC will still have to be issued if the criteria are met).
Key 1099 Forms Affected
OBBBA affects several common 1099 forms:
- Form 1099-K — used by payment settlement entities (PSEs) or third-party settlement organizations (TPSOs) (e.g., payment apps, online marketplaces, third-party processors) to report card-payments and third-party network transactions. PayPal and Venmo are required to issue 1099-K forms if the limit is reached. However, Zelle is not required to issue 1099-K forms since it facilitates direct bank transfers.
- Form 1099-NEC — used to report non-employee compensation (e.g., payments to contractors, freelancers, independent vendors) for services.
- Form 1099-MISC — used to report various types of miscellaneous income not covered elsewhere (e.g., rent, prizes, certain legal settlements, gross proceeds to attorneys). This is a tricky one. If in your business you pay an attorney (regardless of their status as self-employed, partnership, or corporation), you are required to issue a 1099-MISC if the total of the payments made in 2025 exceeds $600.
Other 1099-series forms (e.g., 1099-INT, 1099-DIV) are generally not affected by these threshold changes.
What the Rules Were — and What They Are Now
Here is a comparison of key thresholds before OBBBA and under the new law, and the effective dates.
| Form | Prior threshold (pre-OBBBA) | New threshold under OBBBA | Effective date / notes |
|---|---|---|---|
| 1099-K (third-party payments via TPSOs / payment apps) | $600 in aggregate payments (no transaction count) — per 2021 law change (though IRS delayed full implementation) | Reverts to $20,000 + more than 200 transactions in a calendar year | For payments made in 2025 and beyond (retroactive to 2022 for unfiled forms) under OBBBA. |
| 1099-NEC (non-employee compensation) | $600 or more per year | Increased to $2,000 | Payments made after December 31, 2025 → so starting with 2026 tax year. |
| 1099-MISC (miscellaneous income / non-wage payments) | $600 or more per year | Increased to $2,000 | Payments after December 31, 2025 → 2026 forms and beyond. |
Starting in 2027, the thresholds for 1099-NEC and 1099-MISC will be adjusted annually for inflation under the new law.
OBBBA’s reinstatement of the old 1099-K threshold halts the previously planned phased implementation of the lower threshold (which had been scheduled to fall to $600 by 2026).
What This Means in Practice — Who Benefits, What to Watch For
✅ Reduced 1099 burden for small transactions
- Gig workers, casual sellers on online marketplaces, individuals splitting payments with friends, or vendors receiving small amounts are far less likely to trigger a 1099-K under the new $20,000 / 200-transaction test. For clarity, Gig workers are individuals who take on short-term, project-based, or flexible jobs instead of hold a traditional, permanent job. They are often considered independent contractors or freelancers. They are paid for specific “gigs” or tasks, rather than receiving a salary or employee benefits like health insurance or paid time off. Examples range from rideshare drivers and delivery personnel to high-skilled professionals like graphic designers, writers, and consultants.
- Small businesses and payors will have to file far fewer 1099-NEC and 1099-MISC forms for modest payments ($600–$2,000), which should cut administrative time and IRS filing costs beginning with payments made in 2026.
- For many independent contractors, small landlords, vendors, side-gig workers, there will be less paperwork and fewer 1099 forms arriving — though their reporting obligation to the IRS does not disappear simply because no form is issued.
⚠️ But income remains taxable
Crucially, even if a 1099 is not issued because the payment does not exceed the threshold, the recipient is still legally required to report all taxable income on their tax return. That means small payments — even under the threshold — remain taxable.
This is especially important for self-employed or gig workers who may rely on 1099-NEC, 1099-MISC, or 1099-K for income-tracking; the absence of a form is not a green light to omit the income. Intentionally omitting income in a tax return can have civil and potentially criminal consequences.
🎯 Compliance complexity — tracking becomes more important
- Payors must be aware of which threshold applies in which year. For example, 2025 sees the reinstated 1099-K threshold, but 1099-NEC and 1099-MISC remain at the old $600 thresholds for 2025 income.
- For 2026 and beyond, payors must track cumulative payments to vendors to know when to hit the new $2,000 threshold (and, starting 2027, adjust for inflation).
- For third-party payment platforms and PSEs, they must evaluate whether to resume 1099-K issuance for users — especially those receiving card payments (which are not subject to the de minimis threshold). Under updated IRS guidance, card payments may still trigger a 1099-K even if they are small. All credit card payment processing for goods or services is subject to 1099-K reporting, with no minimum reporting threshold. The financial institution that processes the payment (the “merchant acquiring entity”) is required to issue Form 1099-K to the payee and the IRS, regardless of the amount
- Backup withholding thresholds and procedures may also be influenced — some commentary indicates that backup withholding rules will align with the new 1099-NEC and 1099-MISC thresholds.
Implications for Tax Professionals, Businesses, and Tax Planning
For tax professionals and their clientele, these 1099 changes under OBBBA have several direct implications:
- Client advisory — For clients who are small-business, gig, or side-gig workers: professionals need to explain that fewer 1099 forms may come this year, but that doesn’t eliminate their responsibility to report all income.
- Documentation emphasis — Professionals should encourage clients and small businesses to maintain good records (AGI, gross receipts, vendor payments, payment app summaries, etc.), especially for 2025–2026, when thresholds shift.
- Plan outreach — Considering California non-conformity issues, this is a good opportunity for professionals to issue a client alert: e.g., “What your rental-property clients need to know about 1099-MISC in 2026,” or “Gig workers — don’t assume no 1099 means no tax.”
- Compliance for payors — Businesses (especially those paying many small vendors) should review their 1099-issuing policies and software: significant changes take effect for payments made after December 31, 2025, so 2026 filings need to use the correct thresholds.
- IRS audit risk — As 1099s automatically back fewer transactions, underreporting risk might rise for both taxpayers and the IRS. As I know from over three decades inside the IRS, historically, income not subject to third-party reporting has been under-reported more often.
Key Dates & Transitional Notes
- Payments made in 2025: 1099-K reports subject to reinstated $20,000/200-transaction test.
- Payments made after December 31, 2025 (i.e., 2026 and after): 1099-NEC and 1099-MISC reporting threshold raised to $2,000.
- Inflation indexing starts in 2027 for 1099-NEC and 1099-MISC thresholds.
Conclusion
The 1099-reporting changes under the One Big Beautiful Bill Act mark a significant shift — effectively rolling back the sweeping lower-threshold reporting mandate imposed under earlier legislation (and partially implemented by the IRS). For many small businesses, gig workers, and casual sellers, the changes reduce paperwork and regulatory burden.