The reporting threshold for Form 1099-NEC and most 1099-MISC boxes went from $600 to $2,000 for payments made in 2026. For most small businesses in Houston, Spring and Humble, that means a thinner stack of forms next January, and that is a real convenience.
But there is a second rule sitting underneath the one everybody is reading about, and it does not use the same number. If you have a contractor you paid last year and you still do not have a signed Form W-9 from them, the $2,000 figure may have nothing to do with what you are supposed to be doing right now.
Here is the part I want you to see.
Backup withholding has its own trigger, and it is not the threshold
Section 3406(a)(1)(A) of the Internal Revenue Code says that in the case of any reportable payment, if “the payee fails to furnish his TIN to the payor in the manner required,” the payer has to deduct and withhold tax from that payment. The rate is tied to the fourth lowest rate under section 1(c), which is 24%. The IRS states the rate the same way in Publication 1281: “Rate/Percentage is 24%.”
So the question is never really “do I need to send a 1099.” The question is “was that a reportable payment.” And for payments to a contractor, the answer comes from section 3406(b)(6).
The three tests, and why only the first one mentions $2,000
Section 3406(b)(6) says a payment of the kind described in section 6041(a) or 6041A(a) — which is what a payment for a contractor’s services is — is treated as a reportable payment only if one of three things is true:
- The total of that payment and all earlier such payments you made to that payee during the calendar year reaches the dollar amount in effect under section 6041(a). For 2026, that is $2,000.
- You were required under section 6041(a) or 6041A(a) to file a return for the preceding calendar year for payments to that payee.
- During the preceding calendar year, you made reportable payments to that payee on which amounts were required to be withheld under section 3406(a).
Any one of the three is enough. That word matters more than the dollar figure.
Test one is the one being written about, and it was recently updated — the 2025 act replaced the old hardcoded “$600” in 3406(b)(6)(A) with a cross-reference to whatever amount is in effect under section 6041(a). The IRS confirmed that change in its April 2026 proposed regulations on the new threshold (REG-113229-25, 91 FR 20599).
Test two is the one that catches people. It does not look at this year’s dollars at all. It looks at whether you had a 1099 filing obligation for that same payee last year.
What that looks like on a real set of books
Say you run a small contracting company in Atascocita. In 2025 you paid a welder $4,100 and filed a 1099-NEC for him, because $4,100 cleared the old $600 line.
In 2026 you use him again, but less: three invoices totaling $1,500. You have asked him twice for a W-9 and he has not sent it back.
Read only the threshold and you conclude two things: no 1099 for 2026, and nothing to withhold. The first conclusion is right on its own terms. The second one is not. Because you were required to file a 1099 for him for 2025, test two is satisfied, so every one of those 2026 dollars was a reportable payment — and he has not furnished his TIN. Twenty-four percent of $1,500 is $360 that should have been withheld, deposited, and reported.
And it changes the first conclusion too. The IRS instructions for Form 1099-NEC direct you to file one for each person from whom you withheld any federal income tax under the backup withholding rules, report it in box 4, and do that regardless of the amount of the payment. So the form you were not going to send becomes a form you have to send.
Backup withholding is not reported on your business return or your 1099s. It goes on its own annual return, Form 945, Annual Return of Withheld Federal Income Tax, after year end.
If you did not withhold, the money comes from you
This is the part that makes it worth your attention rather than your bookkeeper’s. You cannot reach back into a contractor you have already paid in full and recover 24% of it. The IRS is direct about where it looks instead. In the Instructions for the Requester of Form W-9, under Reminders: if you do not collect backup withholding from a payee who is subject to it, “you may become liable for any uncollected amount.”
You decided whether to ask for the W-9. You decided whether to withhold. And you are the one holding the bill.
The W-9 is not actually the requirement. The documented request is.
Here is the piece almost nobody is told, and it is the reason this is an October and November job rather than a January one.
A missing taxpayer identification number on an information return exposes you to penalties under sections 6721 and 6722. You get out of those by showing reasonable cause, and Treasury Regulation 301.6724-1(d) says that means you “acted in a responsible manner.” For a missing TIN specifically, paragraph (d)(2) says you only count as having acted responsibly if you satisfy the solicitation rules in paragraph (e).
Those rules are specific, and they are about requests, not results. You do not have to end up with the W-9. You have to be able to show you asked, the right number of times, at the right times, in the right way:
- Initial solicitation — 301.6724-1(e)(1)(i): it must be made “at the time an account is opened.” And the regulation defines the term for you: “The term account includes accounts, relationships, and other transactions.” For a contractor, the relationship opens when you take them on, not when you file.
- First annual solicitation — (e)(1)(ii): if the initial request produced no TIN, this one must be made on or before December 31 of the year the relationship began (January 31 of the following year if it began that December).
- Second annual solicitation — (e)(1)(iii): on or before December 31 of the next year.
And the request has a prescribed shape. Paragraph (e)(2)(i) says a mail solicitation must include a letter telling the payee that he or she must provide a TIN and that failing to do so carries a $50 penalty on the payee under section 6723; a Form W-9 or an acceptable substitute; and a return envelope. If you ask by phone instead, paragraph (e)(2)(ii) requires you to keep contemporaneous records showing the solicitation was properly made, and to hand them over if the IRS asks.
An email with a blank W-9 attached and no letter is not what that paragraph describes. That is fixable in an afternoon, and it is much harder to fix in February.
What the penalties actually run
For 2026 payments, the forms are filed in 2027, and Revenue Procedure 2025-32 sets the amounts at sections 4.57 and 4.58: $340 per return under section 6721 and $340 per payee statement under section 6722, with the small-filer annual cap at $1,397,000. Corrected within 30 days, each drops to $60; corrected by August 1, each drops to $130.
What I would do this month
- Pull your 2025 1099 list. Every name on it is a test-two payee for 2026, whatever you paid them this year.
- Cross it against your 2026 payments and your W-9 file. The gap between those two lists is your actual exposure.
- For anyone in that gap, send a real solicitation this year — a letter, a W-9, a return envelope — and keep a copy. December 31 is the date that matters for the first annual solicitation, not January 31.
- If you find payments you should have withheld on, call me before you file anything. There is usually a better order to do this in than the one people reach for on their own.
Two things I am not going to assert
Whether a single one-off vendor you will never use again opens an “account” at the first transaction, and exactly how the deposit schedule runs once you start withholding mid-year, both depend on facts I would want to see. Ask me rather than assuming either way.
One figure to keep an eye on
The $2,000 threshold is a base amount. Under section 6041(h) it is indexed for calendar years after 2026, and the IRS’s proposed regulation (§ 1.6041-1(a)(3)) is written that way. That regulation is still proposed, not final, so the statute governs. The threshold is correct as of now, and it is worth re-checking before you set a number in your accounting software for 2027 on the IRS About Form 1099-NEC page.
Sources: IRC §§ 3406(a)(1)(A), 3406(b)(6), 6041(a), 6041(h), 6041A, 6721, 6722, 6723; Treas. Reg. § 301.6724-1(d), (e); Rev. Proc. 2025-32 §§ 4.57, 4.58; REG-113229-25, 91 FR 20599 (April 17, 2026); IRS Publication 1281; Instructions for the Requester of Form W-9; Instructions for Forms 1099-MISC and 1099-NEC; IRS Publication 1586.
Questions about your own contractor file? Call 713-730-9792 or email info@deannacpa.com.
General information current as of October 2026, not advice for your specific situation. Whether any provision described here applies to you, and what it produces if it does, depends on facts this article cannot know. Deanna R. Ngueket, CPA, LLC — certified public accountant licensed in the State of Texas.
