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The One Big, Beautiful Bill Act makes enhancements to the Child and Dependent Care Tax
5 min read
Tax Byte
The One Big Beautiful Bill has significantly altered the landscape of Form 1099 reporting requirements, providing needed relief for both taxpayers, practitioners, and the IRS. These changes affect both Form 1099-K and traditional 1099-NEC/MISC reporting thresholds, with implementation beginning in 2025.
Form 1099-K: Return to Familiar Territory
The $600 Threshold is Dead
The most significant change reverses the controversial $600 reporting threshold for Form 1099-K that was scheduled to take effect in 2026. Instead, the law reverts to the pre-American Rescue Plan Act rules that many practitioners will remember fondly.
New 1099-K Thresholds:
- 2025: Temporary threshold of $2,500 (per Notice 2024-85)
- 2026 and beyond: Return to the dual threshold requirement of $20,000 AND 200+ transactions
This means third-party settlement organizations (payment apps, online marketplaces, etc.) will only be required to issue Form 1099-K when BOTH conditions are met:
- Aggregate payment transactions exceed $20,000 in a calendar year
- Aggregate number of transactions exceeds 200 in a calendar year
Form 1099-NEC and 1099-MISC: Relief
New Thresholds for Form 1099-NEC and Form 1099-MISC
- 2025 Threshold Remains at $600
- 2026 Threshold Increases from $600 to $2,000
Starting in 2026, the reporting threshold for payments to persons engaged in a trade or business and remuneration for services increases dramatically from $600 to $2,000. This represents the first significant adjustment to these thresholds since 1954.
Key Features:
- Effective Date: Payments made after December 31, 2025
- Inflation Adjustments: Beginning in 2027, the $2,000 threshold will be indexed annually for inflation
- Rounding Rule: Inflation adjustments will be rounded to the nearest $100
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Implications for Practices
For Client Advisory
- Small business clients will see a significant reduction in their 1099 reporting burden
- Gig economy workers may receive fewer 1099-K forms, potentially creating a greater need for meticulous record-keeping
- Backup withholding rules have been updated to align with these new thresholds
For Tax Preparation
- Fewer 1099 forms doesn’t mean less income reporting obligation for taxpayers
- Enhanced importance of educating clients on record-keeping requirements
- Potential increase in unreported income issues during IRS examinations
For Compliance Planning
- Review client payment systems and reporting procedures
- Update internal processes for the 2026 threshold changes
- Consider impact on estimated tax payments and quarterly filings
The Bottom Line
These changes represent a significant victory for small business advocates and provide meaningful administrative relief. However, they also underscore the importance of maintaining robust record-keeping practices and client education programs. The reduction in third-party reporting doesn’t eliminate income reporting obligations. These obligations simply shift more responsibility to taxpayers and their advisors.
Tax professionals should begin preparing clients for these changes now, particularly regarding the importance of maintaining detailed transaction records even when 1099 forms may not be issued.
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