Subcontractor Payments and 1099s: What Changed for 2026

Most contractors rely on subcontractors to get work done. Once you have correctly determined that someone is an independent contractor and not an employee, the next step is handling their payments and information reporting properly.

That second half just changed. For payments made in calendar year 2026, the reporting floor is $2,000, not the $600 figure that has been in every 1099 article written before this year. If your process still says "$600," it is out of date.

The general 2026 reporting threshold

The One, Big, Beautiful Bill Act raised the dollar threshold for the payments reported on Forms 1099-NEC and 1099-MISC from $600 to $2,000. The 2026 Instructions for Forms 1099-MISC and 1099-NEC now read: "File Form 1099-NEC, Nonemployee Compensation, for each person in the course of your business during the year to whom you have paid at least $2,000."

Three details matter for getting the timing right:

• It applies to payments made after December 31, 2025. Every check you write this year is measured against $2,000.
• The forms you filed in January 2026 were different. Those covered tax year 2025 payments and were correctly issued at $600. Both numbers are right — for different years.
• The threshold is indexed for inflation beginning in 2027. It will no longer sit still for decades at a time. The $600 figure had been in place since 1954 without adjustment.

The same $2,000 floor applies to the amounts reported on Form 1099-MISC — rents in box 1 and other income in box 3 both now read "$2,000 or more" in the instructions.

Classification still comes first, and it is a separate question

Worker classification and 1099 reporting are related but distinct:

• Classification answers: is this person an employee or an independent contractor?
• 1099 reporting answers: now that they are a contractor, how do I document and report what I paid them?

Getting classification wrong remains the far bigger exposure, and the new threshold does nothing to soften it — a misclassified worker is a payroll tax problem, not a paperwork problem. Our article on workers' compensation and payroll tax pitfalls covers where that goes wrong on job sites. Everything below assumes classification has already been settled correctly.

Collect a W-9 before the first payment — from everyone

The higher threshold makes this more important, not less, and the reason is worth spelling out.

You do not know at payment time who will cross $2,000. A sub you hire for one $900 punch-list job in March may be back twice more by October. If you only chase W-9s from subs you expect to cross the line, you will be chasing paperwork in January from people who have moved on. Collect a completed Form W-9 from every subcontractor before you issue the first payment, regardless of the amount you expect to pay.

The W-9 gives you the legal name, address, and taxpayer identification number needed to prepare an accurate form later. Without a valid TIN on file, you may be required to apply backup withholding at 24% to future payments to that person — which means holding back a quarter of what you owe a sub and remitting it to the IRS. Collecting the W-9 up front is what prevents that.

Track payments all year

Keep clear records of every payment to each subcontractor:

• Date of payment
• Amount paid
• Description of the work or services
• Payment method (check, ACH, card, app)

Payment method now carries more weight than it used to — see the next section. Consistent tracking through the year is what makes year-end preparation a report you run rather than a reconstruction you attempt.

Corporate exceptions and reportable payments

Payments to most corporations do not require a 1099. Two exceptions come up regularly in the trades:

• Attorneys' fees are reportable even to a law corporation. If you paid a lawyer $2,000 or more for a lien dispute, contract review, or collections work, that goes on a 1099-NEC no matter how the firm is organized.
• Medical and health care payments to corporations are reportable on Form 1099-MISC.

The W-9 is where you learn how a sub is organized, which is another reason to have it before the money moves rather than after.

Card and app payments are reported by someone else — or by nobody

Payments you make by credit card, debit card, or through a third-party payment network are reported by the payment settlement entity on Form 1099-K, and are not reportable by you on a 1099-NEC or 1099-MISC. Issuing your own 1099 for those creates a duplicate against the sub's records.

There is a gap here worth understanding. Third-party settlement organizations are not required to file a 1099-K unless payments to a payee exceed $20,000 and 200 transactions — a threshold the same 2025 law restored to its pre-2021 level. Combine that with the new $2,000 floor on your side and a modest, card-paid subcontractor may receive no information return from anyone.

That is not a loophole for either party. The sub still owes tax on the income, and you still need the payment documented to deduct it. It simply means the IRS forms are no longer doing your recordkeeping for you at the small end, and your own books have to carry that weight.

Filing deadlines and the 10-return rule

• Form 1099-NEC is generally due to the recipient and the IRS on January 31, moved to the next business day when needed. For 2026 payments, the general due date is February 1, 2027. Confirm any applicable relief.
• Form 1099-MISC is due to recipients by January 31, and to the IRS by February 28 on paper or March 31 electronically.
• Electronic filing is mandatory at 10 returns. That is 10 information returns in aggregate across form types, not 10 of any single form — so a handful of 1099-NECs plus your W-2s can put you over the line without any one category looking large.

One small piece of good news for Florida businesses: Florida imposes no personal income tax and no state-level 1099 filing obligation, so the federal filing is the whole job.

Common process mistakes

• Still working off the $600 number.Use the correct tax-year threshold and payment category. An optional form below the threshold is not automatically an error, but inaccurate or duplicate reporting can create problems.
• Waiting until January to collect W-9s. By then some subs are hard to reach or slow to respond.
• Using the wrong name or TIN. Always use the legal name and taxpayer identification number exactly as shown on the W-9.
• Treating each payment separately. Multiple smaller payments that total $2,000 or more across the year still require a form.
• Duplicating what a processor already reported. Card and third-party network payments are not yours to report.

Turn 1099s into a system

Once classification is handled correctly, the rest is procedural: collect W-9s from everyone early, track payments and payment methods clearly, apply the $2,000 threshold to 2026 payments, and file on time. The threshold moved for the first time in seventy-one years, and it will move again with inflation from 2027 — so the process worth building is one that reads the current number each year rather than one with $600 baked into it.

If you would like help setting up a clean process, or reviewing how you currently handle subcontractor payments and 1099s, contact KDM Accounting Services. We will help you put a reliable system in place.