OBBBA raised 1099-NEC to $2,000 and reverted 1099-K to $20K/200. The bookkeeper workflow that doesn't fall apart in January.
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1099 Filing for Bookkeepers: The 2026 Workflow
It's January 24, 2026. Your client's vendor list has 31 names with payments over $2,000. You have W-9s on file for 22 of them. TIN matching surfaces 3 mismatches. Two vendors are foreign and shouldn't be on a 1099 at all. One payment of $4,800 went through Stripe and the client thinks Stripe will issue the 1099-K, but the new threshold says it won't.
This is what 1099 season looks like for bookkeepers in the OBBBA era. The thresholds changed, the cleanup work shifted, and the firms that didn't update their year-round workflow are doing the same January scramble they always did, just with different numbers on the forms.
This pillar covers the 2026 1099 workflow end to end: which form to use, what the new thresholds actually mean, how to run TIN matching before filing, when backup withholding kicks in, what to do about CP2100 B-Notices, how foreign vendors get reported on 1042-S instead, and the deadlines and penalties you'll face if any of it goes sideways.
What is 1099 filing for bookkeepers?
1099 filing is the year-end information-return process where U.S. payers report payments to nonemployee vendors so the IRS can match what was paid against what those vendors report as income. For tax year 2026, you file a 1099-NEC for any U.S. vendor paid $2,000 or more for services under the One Big Beautiful Bill Act (raised from $600), a 1099-MISC for nonservice payments like rent or legal settlements at the same $2,000 threshold, and a 1099-K only when third-party processors like Stripe, PayPal, or Venmo paid a vendor more than $20,000 across more than 200 transactions. Foreign vendors get reported on Form 1042-S, not 1099. The cleanest workflow starts at vendor onboarding (W-9 before first payment), runs through year-round categorization, and lands at a clean January batch file with TIN matching done in December.
Key Takeaways
The 1099-NEC and 1099-MISC threshold jumped from $600 to $2,000 for 2026. OBBBA, signed July 4, 2025, raised the IRC §6041(a) threshold under IRS Notice 2025-62. Payments after December 31, 2025 only require a 1099 if total annual payments hit $2,000. You'll file fewer forms but the W-9 collection rule still covers every vendor.
The 1099-K threshold reverted to $20,000 AND 200 transactions, retroactive to 2022. OBBBA killed the American Rescue Plan's $600 phase-down. Stripe, PayPal, Venmo Business, and Square only issue 1099-K when a vendor crosses both thresholds. The 1099-NEC reporting burden lands back on the payer.
Backup withholding stays 24% under IRC §3406. Treasury and IRS issued proposed regulations matching §3406's trigger to the new $2,000 §6041 threshold. If a vendor refuses a valid W-9 once you've paid them $2,000, you withhold 24% of every subsequent payment and remit it to the IRS.
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Filing deadline is February 2, 2026 (January 31 falls on a Saturday). Penalties run $60 per form within 30 days, $130 per form between 30 days and August 1, $340 per form after August 1 or never, and $680 per form for intentional disregard under IRC §6721.
TIN matching is free and most firms skip it. The IRS offers free TIN matching at irs.gov/tin-matching. Run the vendor list in December, fix mismatches before the January batch file, and you'll avoid the bulk of CP2100/CP2100A B-Notices that arrive in spring.
Foreign vendors are reported on 1042-S with a March 15 deadline. U.S.-source income to foreign vendors triggers IRC §1441 30% withholding unless a tax treaty reduces the rate. The vendor submits W-8BEN or W-8BEN-E, not W-9, and 1099 doesn't apply.
The 1099 process touches payment reconciliation (which payments count toward the threshold), chart of accounts (how contractor payments get coded), and the glossary for adjacent definitions. The upstream gate is the W-9: see how to request a W-9 from a vendor for the onboarding workflow that prevents January from being a fire drill.
The Three Thresholds That Changed for 2026
Three numbers drive every 1099 decision a bookkeeper makes in 2026. Get them wrong and the consequences range from a missed filing to a $680 per-form intentional-disregard penalty.
1099-NEC and 1099-MISC: $2,000. The One Big Beautiful Bill Act raised the §6041(a) threshold from $600 to $2,000 for payments made after December 31, 2025. The $2,000 number applies to both 1099-NEC (services) and 1099-MISC (rent, royalties, prizes, legal settlements). It indexes for inflation starting in 2027. IRS Notice 2025-62 confirms the change applies to forms you file in January 2027 for the 2026 tax year.
1099-K: $20,000 gross AND 200 transactions. The American Rescue Plan dropped this threshold to $600 in 2021. OBBBA repealed that change retroactive to 2022. For 2026 (and 2022 through 2025), third-party settlement organizations like Stripe, PayPal, Venmo Business, and Square only issue 1099-K when a payee crosses both $20,000 in gross payments AND 200 transactions. Most small-business vendors won't trip both gates.
Backup withholding: 24%, triggered at $2,000. IRC §3406 didn't change rate-wise, but the trigger threshold moved. Treasury and the IRS issued proposed regulations matching §3406's trigger to the new §6041 $2,000 threshold. The mechanic: once cumulative payments to a vendor cross $2,000 without a valid W-9 on file (or with a TIN that doesn't match IRS records), you withhold 24% of every subsequent payment and remit quarterly via Form 945.
1099-NEC vs 1099-MISC: Which Form for Which Payment
Most bookkeeper questions in January boil down to "which form does this go on?" The answer is cleaner than most people remember.
1099-NEC (nonemployee compensation) covers payments to U.S. vendors for services. Independent contractors, freelance designers, consultants, gig workers, attorneys for legal services, accountants providing professional services, marketing agencies, IT contractors, and trade workers like plumbers and electricians who invoice your client. If a vendor sent you an invoice for work done, the payment goes on 1099-NEC.
1099-MISC covers nonservice payments. Rent paid to a landlord (commercial or residential, business purpose), royalties to a content creator or licensor, prizes and awards (think contest winners), medical and healthcare payments to non-incorporated providers, crop insurance proceeds for agricultural clients, and legal settlement proceeds paid to attorneys when the payment is for the underlying settlement rather than legal services.
Both forms now share the $2,000 threshold. Both have the same January 31 (Feb 2, 2026 calendar shift) deadline. The difference is the box: NEC goes in Box 1, while MISC reports rent in Box 1, royalties in Box 2, prizes in Box 3, and so on across the form's various fields. The penalty if you file the wrong form is the same as filing late: $340 per form after August 1.
Two payments that confuse bookkeepers every year: attorney payments split. Legal services rendered to your client go on 1099-NEC. Settlement proceeds paid through an attorney's trust account go on 1099-MISC Box 10. Vendor reimbursements don't count. If you reimburse a contractor for $400 in materials they bought for your project, the materials reimbursement isn't 1099-reportable. The labor portion is.
The Year-Round Workflow That Doesn't Fall Apart in January
The bookkeeper-first version of 1099 season starts in March, not January. Five recurring steps:
1. Collect W-9 at vendor onboarding. No exceptions. No payments before the form is on file. See the W-9 request workflow for the 90-second email template. The single highest-ROI gate in the whole process.
2. Tag 1099-eligible vendors in your AP system. Most bookkeeping platforms have a "Track 1099" or "Eligible for 1099" flag on the vendor record. Set it during onboarding, not December. QBO, Xero, Bill.com, and Ramp all have this flag.
3. Categorize contractor payments consistently year-round. Contractor payments belong in Outside Services, Contract Labor, Professional Fees, or Legal Fees depending on your chart of accounts. Mixing them with reimbursements, refunds, or employee payments breaks the year-end report. See what category contractor payments go in for the coding rules.
4. Run TIN matching in December. The IRS TIN Matching Program at irs.gov/tin-matching is free. Submit your vendor list, get back match/no-match results, chase the mismatches before the January batch file goes out. Skipping this step is why firms get CP2100s in May.
5. Reconcile payment totals against the AP register in mid-January. Pull the 1099 candidate report, cross-check vendor payment totals against the AP system, exclude payments made through 1099-K processors (Stripe etc. for amounts over $20K and 200 transactions), and confirm each vendor's W-9 status before submitting the batch.
Firms that do these five steps spend half a workday on 1099 filing per client. Firms that skip them spend half a week per client and still get B-Notices in April.
TIN Matching: The 30-Minute Step Most Firms Skip
The IRS offers free TIN matching at irs.gov/tin-matching. The process: register through e-Services, upload a CSV of vendor names and TINs, get back match/no-match codes within 24 hours for bulk submissions and instantly for interactive matching of up to 25 names at a time.
What TIN matching catches: vendor wrote their EIN as their SSN by mistake, vendor wrote "Acme LLC" but the EIN is registered to "Acme Holdings LLC," vendor's name on the W-9 doesn't match IRS records because of a divorce or business sale, vendor recopied an old W-9 with a TIN that was retired.
Each of these errors triggers a CP2100 or CP2100A B-Notice from the IRS after you file. The notice gives you 30 days to send the vendor a second W-9 request. Miss the 30-day window and backup withholding starts at 24% on the next payment.
The fix is to catch all of this in December. Submit the vendor batch, get the no-match list, email those vendors with a corrected W-9 request, fix the database, then file in January with a clean list. TIN matching costs zero dollars and takes 30 minutes. CP2100 cleanup costs hours per vendor.
Backup Withholding: When the Gate Breaks (IRC §3406)
Backup withholding is what happens when the W-9 process fails. The mechanic is simple: 24% of every gross payment to a non-compliant vendor gets withheld and remitted to the IRS.
Three triggers under IRC §3406:
Vendor refused to provide a W-9 and you've paid them $2,000 or more cumulatively in the year.
Vendor provided a TIN that didn't match IRS records (you got a CP2100 B-Notice, sent the second W-9 request, and 30 days passed without response).
IRS sent a Notice 668-W (Notice to Levy) instructing you to withhold against a specific vendor.
The remittance schedule: withheld amounts go to the IRS via Form 945 (Annual Return of Withheld Federal Income Tax) due January 31 of the following year. If withholding exceeds $2,500 in any quarter, you remit quarterly via EFTPS. Most bookkeepers handle this through their payroll service so the deposit schedule mirrors federal payroll deposits.
In practice, backup withholding almost never happens for firms that run the upstream W-9 workflow. It's the cleanup tool for vendors who slipped past the gate.
The 2026 deadlines (for tax year 2025 filings, since 1099-NEC files in January after the tax year closes):
January 31, 2026 is the statutory deadline for 1099-NEC to recipients AND the IRS. Because January 31, 2026 falls on a Saturday, the deadline shifts to Monday, February 2, 2026.
January 31, 2026 is the deadline for 1099-MISC recipient copies. The IRS filing deadline for 1099-MISC depends on the boxes used: paper filing March 1, 2026 (March 2 since March 1 is a Sunday), electronic filing March 31, 2026.
March 15, 2026 is the deadline for 1042-S (foreign vendor reporting), no calendar shift needed.
Penalties under IRC §6721 are tiered:
$60 per form if filed within 30 days of the deadline.
$130 per form if filed between 30 days late and August 1.
$340 per form if filed after August 1 or never filed.
$680 per form for intentional disregard, with no cap.
On a 20-vendor 1099-NEC batch filed in October, that's $6,800 in penalties. If the IRS determines the late filing was intentional, the same batch hits $13,600 with no statutory cap.
The penalty amounts index annually for inflation. The 2025 amounts were $60 / $130 / $340 / $660. For 2026, the intentional-disregard tier moved to $680.
After filing, two things go wrong: you filed a 1099 with bad data, or the IRS sends a CP2100/CP2100A B-Notice because a TIN didn't match.
Filing a corrected 1099. When the original filing has an error (wrong TIN, wrong amount, wrong recipient address, wrong box), you file a corrected 1099 marked with the "Corrected" box at the top. For paper filers, attach Form 1096 marked corrected with the totals. For electronic filers, the IRS FIRE system handles the correction flag. The corrected return replaces the original in IRS records.
Common correction scenarios: vendor sent a corrected W-9 in February after January filing; you discover a $1,000 payment was double-counted; the recipient address was wrong because the vendor moved.
CP2100 / CP2100A B-Notice. The IRS sends these notices after matching your 1099s against their TIN database. You have 30 days to send the vendor a second W-9 request (the "B-Notice solicitation"). The solicitation needs to be in writing because that record is what protects the firm if the vendor never responds and the IRS later asks why backup withholding didn't start.
Foreign Vendors: 1042-S, W-8BEN, and the §1441 Trap
Foreign vendors never go on a 1099. Different form, different rules, different deadline, different penalty regime.
The form chain. Foreign individual vendors submit W-8BEN. Foreign entity vendors submit W-8BEN-E. The forms document the vendor's foreign status and any tax treaty claims for reduced withholding rates. You collect these at onboarding the same way you collect a W-9 from U.S. vendors.
Withholding. Under IRC §1441, U.S.-source income to foreign payees is subject to 30% withholding at the time of payment unless a tax treaty between the U.S. and the vendor's country reduces the rate. Most major treaties (UK, Germany, Canada, Japan, India, etc.) provide reduced rates of 5-15% on different income types. The W-8BEN/W-8BEN-E documents the treaty claim.
Reporting. Year-end reporting goes on Form 1042-S, not 1099-NEC. The deadline is March 15, 2026, and the penalties under IRC §6721 are the same as 1099 penalties but the per-form rate is sometimes higher due to the additional reporting complexity.
Source rules trip everyone up. Work performed by a foreign vendor outside the U.S. for U.S. clients is generally foreign-source income, which isn't U.S. taxable and isn't 1099 or 1042-S reportable. Work performed by a foreign vendor inside the U.S. is U.S.-source and triggers withholding and 1042-S. The location of the work, not the location of the vendor, determines source.
Growthy categorizes vendor payments automatically. You review and approve. The 1099-eligible flag follows the vendor from onboarding through year-end. As payments accumulate against each vendor, Growthy tracks the running cumulative against the $2,000 threshold and surfaces vendors approaching the threshold in your monthly review queue.
W-9 status is visible at the vendor record. If a vendor crosses $2,000 without a W-9 on file, Growthy escalates the alert: you can still release payment, but the missing-W-9 warning surfaces at every payment touchpoint until the form is resolved.
At year-end, Growthy generates a 1099 candidate list ranked by total payments and W-9 status. Vendors over $2,000 with a clean W-9 go to the export. Vendors over $2,000 missing a W-9 land at the top of the cleanup list with payment totals and dates. The TIN matching CSV export is one click.
Built by a CPA firm partner who still reconciles books for real clients. 85% accuracy on first import. Climbs to 90%+ as Growthy learns each client's vendor patterns over the first 30 days. See Growthy's AI bookkeeping features for how the categorization engine works under the hood.
FAQ
Do I file a 1099 for a vendor paid $1,500 in 2026?
No. Under OBBBA, the 1099-NEC and 1099-MISC threshold for 2026 is $2,000. A vendor paid $1,500 doesn't require a 1099. You still collect the W-9 at onboarding because you don't know in March whether the vendor will hit $2,000 by December.
Does Stripe issue a 1099 for my contractor payments?
Not unless the contractor receives more than $20,000 in gross payments AND more than 200 transactions through Stripe in 2026. The 1099-K threshold reverted under OBBBA. For most contractor payments below those thresholds, the 1099-NEC reporting burden falls on you as the payer.
What if I missed the January 31 (Feb 2, 2026) deadline?
File as soon as possible. Penalties run $60 per form within 30 days, $130 per form before August 1, and $340 per form after August 1. The penalty meter runs from the original deadline, not from the date you noticed you missed it. Filing late is always better than not filing.
Do I file a 1099 for a payment to an LLC?
It depends on how the LLC is taxed. Single-member LLCs default to disregarded-entity status, which means the owner is the taxpayer and the payment is reportable on 1099-NEC if it crosses $2,000. Multi-member LLCs taxed as partnerships also get a 1099. LLCs that elected C-corp or S-corp status via Form 8832 or 2553 generally don't get 1099s (with limited exceptions for legal and medical payments).
Do payments by credit card count toward the $2,000 threshold?
No. Payments made via credit card, debit card, or third-party network like PayPal or Venmo Business are excluded from the 1099-NEC count. Those payments fall under the 1099-K regime, which is the responsibility of the card processor or payment network. Track them separately so you don't double-count.
Can I file 1099s electronically?
Yes, and as of 2024 you must file electronically if you have 10 or more information returns total across all form types. The IRS FIRE system handles bulk filings. Most accounting software (QBO, Xero) and dedicated 1099 services (Track1099, Tax1099) integrate with FIRE directly.
What if a vendor sends a W-8BEN instead of a W-9?
The vendor is claiming foreign status. Don't file a 1099. The payment is reportable on Form 1042-S instead, due March 15, 2026, with potential §1441 withholding. Verify the W-8BEN is current (forms expire three years from the end of the year signed) and check treaty rates for the vendor's country.
When should I start the 1099 process for tax year 2026?
The year-round workflow starts at vendor onboarding. The specific year-end push starts in November: pull the candidate list, run TIN matching in December, batch-file in January. Firms that wait until mid-January are doing in three weeks what should have taken three months.
Get Started
If 1099 season is the worst week of your year, the gate is the year-round vendor workflow, not the January batch file. Start with Growthy free. Vendor flags surface at payment time. W-9 status follows the vendor record. 1099 candidate lists ranked by dollar and W-9 status are one click. Done in a morning, not a week.
Built by a CPA firm partner who still reconciles books for real clients. 85% accurate on first import. Climbs to 90%+ as the tool learns each client's vendor patterns over the first 30 days.
Tax figures verified against IRS Notice 2025-62, IRS 1099-K FAQs, §3406 proposed regulations, and IRS Pub 1099 General Instructions on 2026-05-14. The $2,000 1099-NEC and 1099-MISC threshold and reverted $20,000 + 200 transaction 1099-K threshold apply to payments made on or after January 1, 2026.
1099 Filing
1042-S for Foreign Vendors: When 1099 Doesn't Apply (W-8BEN, §1441, March 15 Deadline)
Foreign vendors never go on a 1099. Here's the correct form chain: W-8BEN, Form 1042-S, §1441 withholding, and a March 15 deadline.
