The One Big Beautiful Bill (OBBB) has introduced significant changes to 1099 and contractor reporting requirements. These modifications aim to improve tax compliance and provide clearer guidelines for businesses and independent contractors alike. Let’s break down the key changes and their potential impacts.
New Reporting Thresholds
One of the most notable changes is the adjustment to the reporting threshold for 1099-MISC and 1099-NEC forms starting on January 1, 2026. The current threshholds stay in effect through 2025. Under the new rules:
- The threshold for reporting payments to contractors has been raised from $600 to $2,000
- This change applies to both goods and services provided by independent contractors.
This adjustment may reduce the paperwork burden for businesses that work with numerous small-scale contractors or freelancers.
Enhanced Information Requirements
The OBBB also mandates more detailed information on 1099 forms:
- Contractors must now provide their Tax Identification Number (TIN) before receiving payment.
- Businesses are required to verify TINs with the IRS before filing 1099 forms.
- Additional fields have been added to capture the nature of services provided.
These changes aim to increase accuracy in reporting and reduce discrepancies between contractor income and business expenses.
New Filing Deadlines
The bill introduces revised deadlines for submitting 1099 forms:
- Forms must be provided to contractors by January 31st
- The deadline 1099-MISC filing with the IRS is March 31st for electronic submissions and February 28th for paper filings. For 1099-NEC, the deadline is January 31st.
This earlier deadline for providing forms to contractors aims to give them more time to prepare their tax returns accurately.
Impact on Specific Industries
Real Estate:
Realtors often work as independent contractors and will need to be aware of these new reporting requirements. The changes may affect how they receive and report their commissions.
Gig Economy:
Gig workers, such as ride-share drivers or food delivery couriers, may see changes in how their income is reported. Companies in the gig economy sector will need to adapt their reporting systems to comply with the new requirements.
Parents with Side Income:
For parents who supplement their income with freelance or contract work, understanding these changes is crucial. It may affect how they report additional income and manage their overall tax situation.
Penalties for Non-Compliance
The OBBB has also increased penalties for failing to file correct information returns:
- The penalty for failing to file a correct information return has increased from $270 to $350 per form.
- The maximum penalty for a calendar year has been raised from $3,339,000 to $4,000,000.
These increased penalties underscore the importance of accurate and timely reporting.
Steps for Compliance
To ensure compliance with these new regulations:
- Update your accounting systems to reflect the new thresholds and information requirements.
- Implement a system to verify TINs before making payments to contractors.
- Educate your team about the new deadlines and enhanced information requirements.
- Consider seeking professional advice to ensure full compliance and to understand how these changes may impact your specific situation.
Looking Ahead
As with any significant change in tax law, it’s possible that further clarifications or adjustments may be made as the new system is implemented. Stay informed about any updates or guidance issued by the IRS regarding these changes.
At Molen & Associates, we’re committed to helping our clients navigate these new reporting requirements. Whether you’re a small business owner, an independent contractor, or someone juggling multiple income streams, we’re here to provide the expertise and support you need to stay compliant and optimize your tax strategy.
Remember, while these changes may seem complex, they’re designed to create a more transparent and efficient system for both businesses and contractors. With the right approach and professional guidance, you can turn these new requirements into an opportunity to streamline your reporting processes and ensure you’re on solid footing with the IRS.
Don’t hesitate to reach out if you have questions about how these changes might affect your specific situation. We’re here to help you make sense of the new rules and develop a strategy that works for you.
It will be important to note that these new rules take effect Jan 1, 2026. The old thresholds stay in effect for 2025. Everything I’ve read states $2,000 threshold These IRS filing deadlines only apply to 1099-MISC and some other 1099 forms. 1099-NEC has been and will continue to be Jan 31.
