Guide · Small business
The 1099 Threshold Is $2,000 for 2026. Box 1b Is the Change That Costs You.
The 1099 threshold went from $600 to $2,000 for payments made in 2026. Most coverage stops there and calls it less paperwork. The same section of the same law put cash tips, an occupation code and overtime on the 1099 itself, and tied your workers’ tip deduction to receiving that form. If you pay tipped people on a 1099, those two changes work against each other.
What actually changed
Section 70433 of the One Big Beautiful Bill Act raised the reporting threshold in section 6041(a) from $600 to $2,000 for payments made after December 31, 2025. Section 6041A, the provision behind Form 1099-NEC, was amended to track whatever number is in effect under 6041(a), so nonemployee compensation moved with it.
Three details that get left out of the summaries:
- The $2,000 figure is written for 2026 specifically. For payments made after December 31, 2026, section 6041(h) indexes the threshold for inflation each year, using 2025 as the base year and rounding to the nearest $100. Do not assume $2,000 is permanent.
- The direct sales threshold in section 6041A(b) did not move. It is still $5,000.
- Separately, the 1099-K de minimis rule was restored to more than $20,000 and more than 200 transactions, retroactively, as though it had been written that way in 2021.
The part most write-ups get wrong
You will read that once a vendor crosses $2,000, backup withholding applies to everything you paid them that year. That is not what the statute says.
Section 3406(b)(6) tests each payment against the running total. A payment is treated as reportable only if that payment plus all previous payments during the calendar year reach the threshold. Withholding therefore begins with the payment that crosses the line and applies going forward. It does not reach backward into money that already left your account, and in practical terms it could not: you cannot withhold from a check you cashed in February.
Reporting looks backward
Once the year crosses $2,000, the 1099 reports the full annual total. Pay someone $900, then $900, then $600 and the form shows $2,400, not the $400 over the line.
Withholding looks forward
Backup withholding starts at the crossing payment and runs forward. The $1,800 already paid is not clawed into the withholding base. Getting this backward leads people to the wrong conclusion about what is fixable.
The distinction matters because it tells you what you can still do something about. A missing W-9 discovered in October is a real problem for the rest of the year. It is not a retroactive withholding liability on the whole year.
The change that actually costs your workers money
The same law created a deduction for qualified tips, and it rebuilt the 1099 to carry the data that deduction runs on. Pull up the December 2026 revision of Form 1099-NEC and the old box 1 is gone:
| Box | What goes in it |
|---|---|
| 1a | Nonemployee compensation. The total, same as the old box 1. |
| 1b | Cash tips. Includes tips paid in cash and tips charged to a card. Already included in 1a. |
| 1c | Treasury Tipped Occupation Code. Up to two codes. |
| 1d | Overtime compensation. Already included in 1a. |
Form 1099-MISC gets the same treatment: box 13a for cash tips, box 13b for the occupation code, box 14 for overtime. Both December 2026 revisions are used first to report calendar year 2026 and get filed beginning in January 2027.
Now put the two changes side by side. Here is the trap:
A worker can only deduct tips that were reported to them
Under section 224, an individual is not eligible for the qualified tip deduction unless they were furnished a statement showing those tips, or they report the tips themselves on Form 4137. No statement, no deduction.
The threshold going up means fewer statements get issued
A stylist you paid $1,600 in 2026 generates no federal 1099 at all. Under the old $600 rule they would have received one. The paperwork you skipped was the document their deduction depended on.
And a wrong code is the same as no code
Box 1c takes up to two occupation codes. If code 000 appears and nothing else, the cash tips in box 1b are not qualified tips. Filing the form is not enough. Filing it with the right code is.
So the business that reads “threshold went up, less paperwork” and stops issuing forms has not saved itself anything. It has quietly taken a deduction away from the people who work for it, and it will hear about that in April.
The occupation codes for salons, barbershops and spas
Treasury finalized the list of occupations that customarily and regularly received tips on or before December 31, 2024 in TD 10044. The personal appearance and wellness group runs 601 through 611. If you run a salon, a barbershop, a spa or a studio, your people are on this list.
| Code | Occupation | Examples given in the rule |
|---|---|---|
| 601 | Skincare Specialists | Facialist, electrologist, spa esthetician |
| 602 | Massage Therapists | Deep tissue and sports massage therapists |
| 603 | Barbers, Hairdressers, Hairstylists, and Cosmetologists | Wig stylist, beautician, hair colorist, hair cutter |
| 604 | Shampooers | Scalp treatment specialist, shampoo assistant |
| 605 | Manicurists and Pedicurists | Nail technician, fingernail sculptor, nail painter |
| 606 | Eyebrow and Eyelash Technicians | Eyebrow waxer, lash extension technician |
| 607 | Makeup Artists | Wedding makeup artist, party makeup artist |
| 608 | Exercise Trainers and Group Fitness Instructors | Personal trainer, class instructor |
| 609 | Tattoo Artists and Piercers | Tattooist, body piercer |
| 610 | Tailors | Alterations and fitting |
| 611 | Shoe and Leather Workers and Repairers | Cobbler, leather repairer |
Being on the list is what makes tips qualified for the worker’s deduction. It is a separate question from whether the business can claim the section 45B FICA tip credit, which only works on W-2 employees. If you have booth renters, read the FICA tip credit guide next, because the two provisions treat your workers very differently.
The relief that covered you last year is gone
Notice 2025-62 waived the section 6721 and 6722 penalties for payors who failed to separately account for cash tips, the recipient’s occupation, or qualified overtime. It is worth reading the scope sentence carefully: the relief applies only for taxable year 2025.
There is no equivalent for 2026. The forms exist, the codes are final, and the transition period was the year you already finished.
One thing that is still unsettled
Section 224 does not allow the deduction for tips received in a specified service trade or business. Treasury did not resolve that question in the final rule. The relevant paragraph is reserved for later guidance.
In the meantime, Notice 2025-69 provides that until January 1 of the first calendar year after final regulations on that question, the IRS will treat a taxpayer in a listed tipped occupation as not being in a specified service trade or business. For a barber or a stylist in code 603, that is workable for now. It is not permanent, and it is the piece of this to watch.
What to do before January
Pull your vendor payment totals for the year so far
Not by invoice, by payee, for the calendar year. The question is who is near or over $2,000 and whether you have a signed W-9 for each of them.
Keep collecting W-9s before the first payment
Every time, regardless of how small the job looks. This is the one habit the threshold change should not alter.
Decide now how you will identify tips
If any 1099 worker receives tips through you, whether in cash or charged to a card, you need the tip total separated from the service fee in your books before year end. Reconstructing that in January from a year of mixed deposits is the expensive version.
Assign occupation codes
One or two codes per tipped payee, from the TD 10044 list. Put them in the vendor record now so they are not a guess at filing time.
Check your state separately
State thresholds are set by state law and several did not follow the federal change. A payee can trigger a state filing obligation with no federal one. Colorado, for instance, keys its requirement to whether Colorado tax was withheld. Confirm your own state rather than assuming.
If you want someone to just handle it
This is the kind of work that is cheap to do in October and expensive to do in January. Vendor totals, W-9s on file, tips separated in the books, codes assigned. We do it as part of monthly bookkeeping, and if your books are behind we fix that first.
Who does the work, and who signs it
Every close and every return is reviewed and signed by a licensed US CPA. Not a bookkeeper, not an account manager, not a rotating team. One licensed person is accountable for the result and you can look the license up yourself.
A named CPA signs
Alexander Mungov, CPA, Colorado license CPA.0030131. Verify it any time through the Colorado DORA license lookup.
A fixed fee, in writing
You get the number before any work starts. It does not change unless the scope does. No hourly surprise at the end.
Your books stay yours
Everything is kept in your own QuickBooks, under your login. If you leave, you take all of it, because it was always yours.
Common questions
What is the 1099 threshold for 2026?
$2,000. The One Big Beautiful Bill Act raised the section 6041(a) reporting threshold from $600 to $2,000 for payments made after December 31, 2025. Section 6041A, which covers nonemployee compensation on Form 1099-NEC, was amended to track the same number. Starting with payments made after December 31, 2026, the threshold is adjusted for inflation each year and rounded to the nearest $100.
If I pay someone $900 in February and $1,500 in October, do I file a 1099?
Yes. The test is the total paid during the calendar year, not the size of any one job. $2,400 for the year is over $2,000, so the payment is reportable and the 1099 shows the full $2,400, not the $400 above the line.
Does backup withholding apply to everything I paid that person?
No, and this is the detail most write-ups get wrong. Section 3406(b)(6) tests each payment against the running total. A payment is reportable only once it, plus everything paid earlier that year, reaches the threshold. So withholding starts with the payment that crosses $2,000 and applies to payments after that. It does not reach back to money already paid. Reporting looks backward over the whole year. Withholding does not.
Do I still need a W-9 if the job is small?
Yes. You cannot tell in February what the year will total, and once the year crosses $2,000 without a TIN on file you have a withholding obligation you can no longer satisfy out of money already paid. The threshold moved. Getting a signed W-9 before the first payment did not.
What are the new boxes on the 2026 Form 1099-NEC?
The old box 1 becomes box 1a, nonemployee compensation. Box 1b is cash tips, box 1c is the Treasury Tipped Occupation Code, and box 1d is overtime compensation. The amounts in 1b and 1d are already included in 1a, so they are a breakout, not an addition. Form 1099-MISC gets box 13a for cash tips, 13b for the occupation code and box 14 for overtime. The December 2026 revision of each form is used first for calendar year 2026 and filed beginning in January 2027.
What happens to my tipped contractor if I do not file the 1099?
They lose the deduction. Under section 224 an individual cannot claim the qualified tip deduction unless they were furnished a statement showing the tips, or they report the tips themselves on Form 4137. If you are under the threshold and file nothing, nobody furnishes that statement. The higher threshold and the tip deduction pull in opposite directions, and the person who loses is the worker.
What is a Treasury Tipped Occupation Code?
A code identifying an occupation that customarily and regularly received tips on or before December 31, 2024. Treasury finalized the list in TD 10044. The personal appearance and wellness codes run 601 through 611 and cover skincare specialists, massage therapists, barbers and hairstylists, shampooers, manicurists, eyebrow and eyelash technicians, makeup artists, trainers, tattoo artists, tailors and shoe repairers. If code 000 is used and no other code appears, the cash tips are not qualified tips.
I got penalty relief last year. Does that still apply?
No. Notice 2025-62 waived the section 6721 and 6722 penalties for failing to separately account for cash tips, the occupation and qualified overtime, and it says plainly that the relief applies only for taxable year 2025. For 2026 the reporting is expected to be right.
Does my state follow the $2,000 threshold?
Not automatically, and several do not. A state threshold is set by state law, so a contractor can generate no federal filing obligation and a state one at the same time. Colorado, for example, keys its requirement to whether Colorado tax was withheld. Check your own state’s revenue department rather than assuming the federal number carries over.
Related
The FICA tip credit now covers salons, barbershops and spas
Section 45B was a restaurant provision for thirty years. Worth 7.65 percent of qualifying employee tips, and worth nothing on booth renters.
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Alexander Mungov, CPA
Founder and principal, M2 CPA
Alexander Mungov is a CPA and the founder of M2 CPA. Before the firm he spent twelve years auditing for the Defense Contract Audit Agency and two years running government compliance inside a defense technology company.
Alongside its government contract work, the firm handles monthly accounting and business and owner tax returns for owner-run companies. More about Alex.
Get your 1099s sorted before January
Send us your vendor payment totals for the year. We will tell you who crosses $2,000, who is missing a W-9, which payees need a tip breakout and an occupation code, and what it costs to have it done properly.