1099-NEC 2026: What AP Teams Must Do Now

Every January, accounts payable teams face the same crunch: pulling together accurate vendor payment data, verifying taxpayer identification numbers, and filing 1099-NEC forms before the January 31 deadline. In 2026, that process has changed in ways that will affect how you track vendor payments for the rest of this year.

The most significant change: the 1099-NEC reporting threshold has increased from $600 to $2,000 for tax year 2026. This is not a temporary adjustment — the new threshold is indexed to inflation going forward. For AP teams managing large vendor rosters, this change will reduce the number of 1099-NECs you need to file, but it also creates a compliance risk if your tracking systems are not updated to reflect the new threshold.

What Changed for 2026

The $2,000 Reporting Threshold

For tax years 2024 and 2025, the 1099-NEC reporting threshold was $600. Any vendor paid $600 or more in nonemployee compensation during the year required a 1099-NEC. Beginning with tax year 2026, that threshold increases to $2,000 and will be adjusted for inflation in subsequent years.

This change was enacted as part of the One Big Beautiful Bill signed into law in July 2025. The practical effect for AP teams is that vendors paid between $600 and $1,999 during 2026 will not require a 1099-NEC — but you still need to collect a W-9 from them and verify their TIN before making payments, because you will not know at the time of payment whether total annual payments will exceed the threshold.

New Fields on the Revised Form

The IRS released a preview of the revised 2026 Form 1099-NEC that includes new reporting fields for cash tips and overtime compensation. These additions reflect broader changes to how certain compensation types are taxed under the One Big Beautiful Bill, which introduced new tax treatment for tips and overtime pay for certain workers.

For most AP teams paying independent contractors and vendors, these new fields will not apply. They are primarily relevant to businesses that pay workers who receive tips or overtime. However, if your organization uses 1099-NEC to report any compensation that might include these components, you will need to review the updated form instructions before year-end.

1099-K Threshold Reverts to $20,000

A related change that affects AP teams using payment platforms: the 1099-K reporting threshold has reverted to more than $20,000 in payments and more than 200 transactions for tax year 2025 and beyond. This reverses the brief period when the threshold was set at $600 (which was never actually enforced) and then $5,000 for 2024. If your organization pays vendors through platforms like PayPal or Venmo, those platforms will now only issue 1099-Ks for vendors exceeding the $20,000/200-transaction threshold.

What This Means for Your AP Process Right Now

Update Your Tracking Threshold — But Keep Collecting W-9s

The most important operational change is updating your payment tracking threshold from $600 to $2,000. Any vendor management system or spreadsheet that flags vendors for 1099 filing at $600 needs to be updated before year-end.

However, this does not mean you should stop collecting W-9 forms from vendors paid less than $2,000. You should still collect a W-9 from every vendor before making any payment, for two reasons. First, you will not know at the time of the first payment whether total annual payments will exceed the threshold. Second, the W-9 serves purposes beyond 1099 reporting: it verifies the vendor's TIN, confirms their business name and structure, and establishes whether backup withholding applies.

If a vendor refuses to provide a W-9 or provides one with a TIN that does not match IRS records, you may be required to withhold 24% of payments as backup withholding. The 2026 law increased thresholds for certain information reporting and associated backup withholding obligations; consult a tax specialist to confirm how backup withholding applies to your specific vendor relationships under the new rules.

Audit Your Vendor Master File for TIN Accuracy

The January 31 filing deadline is five months away, but TIN verification issues are best caught now, not in January when you are under deadline pressure. The IRS's TIN Matching program allows you to verify vendor TINs before filing season. Running your vendor list through TIN matching in Q3 gives you time to follow up with vendors who have incorrect or missing TINs before payments accumulate.

Common TIN issues that cause 1099 filing problems include: vendors who provided a Social Security Number on their W-9 but have since incorporated (their EIN is now the correct TIN), vendors whose legal name does not match the name on file with the IRS, and vendors who provided an EIN for a business entity that has since dissolved.

Each of these issues will generate an IRS CP2100 notice if not corrected before filing. Addressing them now is far less disruptive than responding to notices after filing.

Review Your Backup Withholding Procedures

Backup withholding at 24% is required when a vendor fails to provide a valid W-9, provides a TIN that the IRS notifies you is incorrect, or fails to certify that they are not subject to backup withholding. The new $2,000 threshold does not affect backup withholding obligations — you must withhold on any payment to a vendor who triggers backup withholding, regardless of amount.

If your AP team does not have a documented procedure for identifying and applying backup withholding, this is the time to create one. The procedure should specify: when to request a W-9 (before the first payment), what to do when a vendor refuses (withhold 24%), how to handle IRS CP2100 notices (begin withholding within 30 days), and how to remit withheld amounts to the IRS.

The Vendor Onboarding Connection

The 1099-NEC changes reinforce a principle that good AP teams already follow: collect a W-9 from every new vendor before making any payment, verify the TIN against IRS records, and document the verification in your vendor master file.

This is not just a tax compliance requirement. It is also a fraud prevention control. A vendor who cannot or will not provide a valid W-9 with a verifiable TIN is a vendor who cannot be properly identified — and unidentified vendors are the foundation of ghost vendor schemes and vendor fraud.

The audit trail you maintain for W-9 collection and TIN verification serves double duty: it satisfies IRS documentation requirements and provides evidence of due diligence if a fraudulent vendor is ever discovered in your system.

A Practical Year-End Checklist for AP Teams

The following steps, completed before October 31, will put your team in a strong position for January filing:

Update your 1099 tracking threshold from $600 to $2,000 in all vendor management systems, spreadsheets, and AP software configurations.

Continue collecting W-9s from all new vendors before their first payment, regardless of expected payment volume.

Run TIN matching on all vendors with year-to-date payments approaching $2,000 or with any history of TIN mismatches.

Review your vendor master file for vendors with missing or unverified W-9s. Any vendor without a valid W-9 on file should be flagged for follow-up before additional payments are made.

Document your backup withholding procedure if you do not have one. Ensure your AP staff knows when withholding is required and how to apply it.

Review the updated 1099-NEC form when the IRS releases the final version for 2026. Confirm whether any of your vendor payments will require the new fields for tips or overtime compensation.

The Broader Compliance Picture

The 1099-NEC threshold change is one of several compliance developments affecting AP teams in 2026. The Nacha Phase 2 fraud monitoring rule (effective June 22) requires documented fraud detection processes for all ACH originators. The AFP Payments Fraud Survey documents that 76% of organizations faced payment fraud attempts in 2025. And AI-generated invoice fraud is making vendor verification more important than ever.

These developments share a common thread: the controls that protect against tax compliance failures — W-9 collection, TIN verification, vendor master file hygiene, segregation of duties — are the same controls that protect against vendor fraud and payment fraud. A well-run AP function does not need separate compliance programs for tax reporting and fraud prevention. The internal controls are the same.

The $2,000 threshold change will reduce your January filing workload. Use the time you save to strengthen the vendor verification processes that protect your organization year-round.