The "One Big Beautiful Bill Act" signed into law on July 4, 2025, makes two important changes to tax reporting requirements that should be of interest to employers.
1099 Reporting Threshold Increased to $2,000 and Indexed for Inflation
Payments to non-employees for personal services must be reported on an "information return," commonly called a Form 1099-NEC, if the payment is $600 or more in a calendar year. Similarly, payments of non-wages, such as for a settlement that includes penalties or emotional distress-type damages, are reportable on Form 1099-MISC if the payment is $600 or more.1
Beginning in 2026, however, Section 70433 of the new Act increases the $600 threshold to $2,000, which will then be adjusted for inflation beginning in 2027. In addition, requirements relating to backup withholding – required when the payee fails to provide a valid Form W-4 or Form W-9 using the taxpayer's correct taxpayer identification number – will similarly be increased to $2,000 and then also be indexed for inflation beginning in 2027.
While amounts below the new reporting thresholds will still constitute income subject to taxation, an employer will no longer be required to issue a 1099 or engage in backup withholding at the lower amounts. This could significantly reduce the number of 1099s that employers are required to issue.
Form 1099-K Reporting Reverts to Original Thresholds
Another important tax reporting change addresses third-party network reporting, which is required on Form 1099-K.2 When such reporting was originally enacted, there was a de minimis exclusion from required reporting if the total amount of such payments was less than $20,000 and involved fewer than 200 transactions. The American Rescue Plan Act of 2021 eliminated the transaction requirement entirely and reduced the reporting threshold to $600, with these changes originally intended to take effect in 2022. The IRS delayed implementation of these changes, most recently stating that it would impose a $2,500 threshold for 2025. Section 70432 of the new Act, however, reinstates the $20,000 and 200 transactions thresholds for required reporting, retroactive to 2022. The Act also applies these standards to backup withholding requirements, effective for 2025.
These adjustments appear to be good news for employers and businesses that regularly make such payments because they should substantially reduce their administrative burdens, particularly with respect to payments made to independent contractors.
Footnotes
1 IRC §§ 6041, 6041A.
2 IRC § 6050W. The 1099-K is issued by third parties such as Venmo, PayPal or other services that collect and process payments for goods and services as well as many digital marketplace or platform-based based businesses that process payments for independent contractors that perform services such as ride sharing or deliveries. Thus, the change is significant for such "gig" economy businesses and will likely significantly reduce the tax reporting obligation for independent contractors that use their marketplaces.
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