The 2026 1099-NEC Threshold Change: What the $2,000 Rule Means for General Contractors

TL;DR: The One Big Beautiful Bill Act raised the 1099-NEC filing threshold from $600 (set in 1954) to $2,000 starting in tax year 2026, with annual inflation adjustments thereafter. Keep collecting W-9s from every sub regardless of dollar amount, because the $310 per-form penalty for missing 1099s is unchanged and W-9s are still required for backup withholding.

The 1099-NEC reporting threshold just changed for the first time in over seven decades. The "One Big Beautiful Bill Act" (OBBBA), signed into law in 2025, raised the threshold from $600 to $2,000 effective for the 2026 tax year. Starting in 2027, that number adjusts for inflation annually.

If you're a general contractor who pays subcontractors, this affects you directly. But not in the way most people assume. The higher threshold doesn't mean less paperwork discipline. It means the rules around who gets a 1099 shifted, and the penalties for getting it wrong haven't gone anywhere.

Here's what actually changed, what it means for how you manage sub payments, and what you need to do about it right now.

What Changed: The $600 Threshold Is Gone

Since 1954, any business that paid $600 or more to an unincorporated vendor or subcontractor in a calendar year was required to file a 1099-NEC (previously 1099-MISC) with the IRS. That threshold held for 72 years without adjustment.

The OBBBA raised it to $2,000. The mechanics are the same: if you pay a subcontractor $2,000 or more in total during the 2026 calendar year, you must file a 1099-NEC reporting that amount to the IRS and provide a copy to the sub. The form, the filing deadline (January 31 of the following year), and the penalties are all unchanged. Only the dollar threshold moved.

Starting in 2027, the $2,000 threshold adjusts annually for inflation. The IRS will publish the adjusted amount each year. For 2026, the number is a flat $2,000.

What This Means in Practice

For GCs, the practical impact is narrow. Most of your subcontractors are well above $2,000 in annual payments. If you're paying a framing crew, an electrician, a plumber, or any trade sub on a real project, you're clearing $2,000 in the first week or two.

Where the change actually matters is at the margins:

• Small one-off jobs. A handyman you paid $1,500 to patch drywall on a punch list. A landscaper you paid $1,800 for site cleanup. Under the old rule, those triggered a 1099. Under the new rule, they don't.
• Material-only vendors. Some vendors you pay for materials and minor labor that previously crossed $600 but stay under $2,000. Those may no longer require a 1099.
• Seasonal or infrequent subs. The sub you bring in once a year for a small scope that totals under $2,000 across all payments.

For most GCs running real projects, the number of subs who fall between $600 and $1,999 in annual payments is small. This is not a dramatic operational change. It's a threshold adjustment that trims the edges.

Why the Higher Threshold Does Not Mean Less Discipline

Here's where contractors get into trouble: assuming a higher 1099 threshold means they can relax their documentation practices. That assumption is wrong, and acting on it is expensive.

W-9 Collection Is Still Mandatory

The 1099 threshold determines when you file a form with the IRS. It does not determine when you need to collect a W-9.

You should be collecting a W-9 from every subcontractor and vendor before you issue the first payment. Period. The reason has nothing to do with whether you'll ultimately file a 1099 for that sub. It has everything to do with backup withholding.

If you pay a subcontractor and don't have a valid W-9 on file, you are required to withhold 24% of every payment and remit it to the IRS. That's not a suggestion. It's a legal obligation under IRC Section 3406. The $2,000 threshold doesn't change this. Whether the sub gets paid $500 or $50,000, if you don't have their W-9, you're supposed to be withholding.

In practice, almost no GC actually withholds 24% from their subs. They just pay the full amount and hope nobody asks. That works until it doesn't. When it doesn't work is during an IRS audit, and the consequence is that you owe the 24% you should have withheld, plus penalties and interest, out of your own pocket. You can't go back and collect it from the sub.

State Thresholds May Be Lower

The federal threshold moved to $2,000. Your state may not have followed. Several states maintain their own 1099 reporting requirements, and some of those thresholds are still at $600 or even lower. If you operate in a state with its own filing requirement, the federal change doesn't help you. You still need to track every payment and file at the state level based on the state's threshold.

Check your state's current requirements. If you operate across multiple states, check all of them. State-level 1099 compliance is easy to overlook and expensive to fix after the fact.

The IRS Can Still Match Payments

Even if a sub falls below the $2,000 threshold and you don't file a 1099, the IRS can still identify payments through bank records, cancelled checks, and electronic payment records. The 1099 is one reporting mechanism. It's not the only way the IRS tracks income.

The Penalties for Getting 1099s Wrong

The penalties for failing to file correct 1099s are unchanged by the OBBBA, and they're significant enough to take seriously.

Late Filing Penalties (Per Form)

• Filed within 30 days of the deadline: $60 per form
• Filed more than 30 days late but by August 1: $130 per form
• Filed after August 1 or not filed at all: $310 per form
• Intentional disregard of the filing requirement: $630 per form, with no annual cap

For a GC with 40 subs who all need 1099s, missing the January 31 deadline entirely means $12,400 in penalties. If the IRS determines you intentionally didn't file, that jumps to $25,200. For one year. These penalties apply per form, and they add up fast.

Incorrect Information Penalties

Filing a 1099 with the wrong TIN (taxpayer identification number), wrong name, or wrong amount triggers the same penalty schedule. This is why W-9 collection matters so much. If the sub gives you a wrong TIN on a W-9, you have a paper trail showing you relied on the information they provided. If you never collected a W-9 and guessed at the TIN, the penalty falls on you.

Payee Statement Penalties

You're also required to furnish a copy of the 1099 to the subcontractor by January 31. Failure to do so carries its own set of penalties on the same schedule as the filing penalties. So a missed 1099 can generate penalties from both the IRS filing side and the payee statement side.

What to Do Right Now

The 2026 tax year is already underway. Here's what every GC should have in place before year-end.

1. Collect a W-9 From Every Sub Before First Payment

This is the single most important compliance step, and the threshold change doesn't affect it at all. Before you cut the first check or release the first draw, get a completed W-9 on file. Verify the TIN matches the legal entity name. Store it somewhere you can actually find it when January rolls around.

If you're onboarding subs on an active project and don't have a W-9, stop payment until you do. It's a five-minute form. There's no legitimate reason a sub can't provide one before work starts.

2. Track All Payments by Vendor, Not Just by Project

Most GC accounting systems track costs by project. That's fine for job costing. It's useless for 1099 reporting. You need a vendor-level view that aggregates all payments to a single sub across all projects for the calendar year.

If you paid ABC Electric $8,000 on Project A and $14,000 on Project B, the 1099 reports $22,000 to ABC Electric. It doesn't matter that the payments came from different jobs. The IRS cares about total payments to a single TIN in a calendar year.

Make sure your accounting system can produce a report that shows total payments by vendor for the year. If it can't, fix that now, not in January.

3. Apply the $2,000 Threshold Correctly

At year-end, pull your vendor payment report. Every vendor who received $2,000 or more in total payments and is not a corporation (C-corp or S-corp, with some exceptions) needs a 1099-NEC. Vendors under $2,000 in total payments do not.

Remember: payments to corporations generally don't require a 1099-NEC. Payments to LLCs taxed as sole proprietorships or partnerships do. This is why the W-9 matters. It tells you the entity type, which determines whether a 1099 is required regardless of amount.

4. Don't Ignore Subs Below the Threshold

Just because a sub falls under $2,000 doesn't mean you should skip collecting their W-9 or tracking their payments. You need the W-9 for backup withholding compliance. You need the payment tracking because a sub who's at $1,800 in November might cross $2,000 by December. And you need both for your own records in case of an audit, a workers' comp premium audit, or a dispute.

5. Review State Filing Requirements Separately

Check whether your state requires 1099 filing, what the state threshold is, and whether the state has adopted the federal change. Some states automatically conform to federal thresholds. Others don't. If you operate in multiple states, you may have different thresholds for different subs depending on where the work was performed.

The W-9 Collection Workflow That Actually Works

The reason most GCs have W-9 problems isn't that the form is complicated. It's that collection happens as an afterthought instead of a gate. Here's the workflow that prevents issues:

Step 1: Make W-9 part of sub onboarding. When a sub signs a subcontract or a purchase order, the W-9 is collected at the same time. Not after. Not "when we get around to it." At the same time as the contract.

Step 2: Verify the W-9 before entering it into your system. Check that the legal name matches the entity on the subcontract, that the TIN format matches the entity type (SSN for sole proprietors, EIN for everything else), and that the form is signed and dated.

Step 3: Store the W-9 with the sub's compliance file. The W-9 lives with the COI, the subcontract, the workers' comp certificate, and every other compliance document for that sub. Not in a separate folder. Not in someone's email. In the sub's file.

Step 4: Flag subs with missing W-9s. Your system should make it obvious when a sub doesn't have a W-9 on file. If you're using PaperBoss, missing documents are flagged automatically and the sub can upload directly through a portal link. If you're using spreadsheets, add a column and check it weekly.

Step 5: No W-9, no payment. This is the enforcement mechanism. If a sub can't produce a W-9, you either withhold 24% or you hold payment until the form is provided. Most subs will produce a W-9 within 24 hours when payment is on the line.

Common Mistakes to Avoid

Mistake 1: Assuming corporations never need 1099s. There are exceptions. Payments for legal services (attorneys) and medical services require 1099s even when paid to corporations. If you're paying a construction law firm or an occupational health provider, check the rules.

Mistake 2: Using the new $2,000 threshold for 2025 filings. The $2,000 threshold applies to the 2026 tax year and beyond. If you're filing 1099s for payments made in 2025 (due January 31, 2026), the old $600 threshold still applies.

Mistake 3: Not tracking cumulative payments. A sub who gets paid $500 per month crosses $2,000 by April. If you're not tracking cumulative totals by vendor, you'll miss the threshold and fail to file.

Mistake 4: Relying on subs to tell you their entity type. Subs will tell you whatever gets them paid fastest. The W-9 is the legal document. Use it. If a sub says "we're a corporation" but their W-9 says sole proprietor, the W-9 controls.

Mistake 5: Treating the threshold change as a reason to relax. The threshold went up by $1,400. The penalties went up by nothing. Backup withholding rules didn't change. W-9 requirements didn't change. Workers' comp audit requirements didn't change. The only thing that changed is which payments trigger a form.

The Bottom Line

The $2,000 threshold is a welcome simplification for small payments at the margins. It eliminates 1099 filings for minor vendors and infrequent subs who fall under the new line. For the average GC, it probably removes a handful of 1099s from your January filing stack.

But it changes nothing about the discipline required to manage subcontractor compliance. W-9 collection before first payment. Payment tracking by vendor across all projects. Entity type verification. State-level awareness. These are non-negotiable whether the threshold is $600 or $2,000 or $20,000.

The GCs who get burned on 1099 compliance are never the ones who misunderstood the threshold. They're the ones who never collected W-9s, never tracked payments by vendor, and spent the last week of January scrambling to figure out who they paid and how much.

If your subcontractor compliance documents are scattered across email, spreadsheets, and filing cabinets, now is the time to fix that. PaperBoss keeps your W-9s, COIs, and sub documentation in one place with automated tracking and reminders so nothing falls through the cracks. Start a free trial and get your 1099 workflow right before year-end.