Form 1099-NEC in 2026: the new $2,000 threshold, and foreign contractors
The rule that governed this form for seventy years changed on 1 January 2026, and a great deal of published guidance has not caught up. If your process still says "$600", it is out of date.
This guide covers who has to file, the new threshold and exactly when it starts, the deadline, the penalties, and - the part that matters most on this site - what happens when the contractor is not a US person, which is the position of every Pakistani freelancer being paid by a US company.
What changed, and exactly when
| Payments made in | Threshold | Forms due |
|---|---|---|
| Calendar year 2025 | $600 | Filed early 2026 under the old rule |
| Calendar year 2026 | $2,000 | Filed by 31 January 2027 |
| 2027 onwards | $2,000, indexed for inflation | Annually |
The change came through the One Big Beautiful Bill Act, which amended the underlying Internal Revenue Code sections to raise the threshold for both Form 1099-NEC and Form 1099-MISC. The same $2,000 figure now applies to the backup withholding threshold.
Who has to file, and for what
Two Code sections create the obligation and a third creates the sanction. Section 6041A requires an information return for payments for services in the course of a trade or business; section 6041 does the same for other reportable payments such as rent. Neither reaches payments to a corporation, which is why the W-9 that establishes the payee's classification matters more than the invoice does. And section 3406 is the one that turns a paperwork failure into cash: where a payee has not furnished a correct TIN, the payer must withhold at 24 per cent and remit it, whether or not the payee ever supplies the number afterwards.
Read those together and the sequence is not optional. You collect the W-9 before you pay, because after you have paid, section 3406 has already been breached and the 24 per cent has to come out of your own pocket or be chased from a contractor who has no reason to return your call.
You file Form 1099-NEC if, in the course of your trade or business, you paid $2,000 or more during the calendar year to a person or unincorporated business for services, and that payee is a US person.
| Payment | 1099-NEC? |
|---|---|
| Freelance designer in Texas, paid $3,400 for design work | Yes |
| Same designer, paid $1,800 in the year | No - below the 2026 threshold, but the income is still taxable to them |
| Accountant operating as a single-member LLC | Yes - a disregarded LLC is not a corporation |
| Vendor that is a C corporation or S corporation | Generally no, with limited exceptions such as legal fees |
| Legal fees paid to a law firm, incorporated or not | Yes - attorney payments are a specific exception |
| Rent, prizes, other income | Form 1099-MISC, not NEC |
| Goods, materials or merchandise | No - the form covers services |
| Payments made through a card or third-party platform | No - the processor reports on Form 1099-K instead |
| Contractor in Pakistan performing all work in Pakistan | No - see the section below |
That last row is worth its own section, because it is the single most common misunderstanding in the Pakistan-US freelance market.
Foreign contractors: the rule almost everyone gets wrong
Form 1099-NEC reports payments to US persons. A non-US individual performing services entirely outside the United States is not reported on a 1099-NEC, and payments for those services are generally foreign-source income that is outside the US withholding net.
What the US payer needs instead is documentation proving the payee is foreign. That document is Form W-8BEN for an individual, or Form W-8BEN-E for an entity. It is given to the payer and kept on file - it is never sent to the IRS.
| Situation | What the payer collects | What the payer files | Withholding |
|---|---|---|---|
| US contractor | Form W-9 | Form 1099-NEC if $2,000 or more | None, unless backup withholding applies |
| Pakistani contractor, all work performed in Pakistan | Form W-8BEN | No 1099-NEC | Generally none on foreign-source service income |
| Pakistani contractor performing services while physically in the US | Form W-8BEN, plus advice | Possibly Form 1042-S | Possible - the income is US-source |
| Payee gives no documentation at all | Nothing on file | Payer is exposed | Backup withholding at 24% is the usual outcome |
Deadlines and penalties
| Obligation | Deadline |
|---|---|
| Furnish the recipient copy of Form 1099-NEC | 31 January |
| File Form 1099-NEC with the IRS - paper or electronic | 31 January |
| Form 1099-MISC recipient copy | 31 January |
| Form 1099-MISC to the IRS | Later than the NEC deadline - check the current instructions for paper and electronic dates |
Form 1099-NEC has no automatic extension of the kind other information returns get, so 31 January is a real date. Penalties are charged per form and rise the longer the failure continues, with a substantially higher charge where the failure is treated as intentional. For a business filing a handful of forms the amounts are modest; for one filing hundreds they are not.
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The mistakes that cost money
- Still using $600 for 2026 payments. Over-filing is not harmful in itself, but it signals a process that has not been reviewed - and the same process is probably wrong somewhere it matters.
- Assuming the federal change applies to the states. Several did not adopt it.
- Skipping the W-9 for small payees. You do not know in January what the year will total, and chasing a TIN in the last week of the year rarely works.
- Issuing a 1099-NEC to a foreign contractor. Wrong form, wrong regime, and it creates a US information record about someone who should not have one.
- Accepting a W-9 from a non-US person. The document is now wrong on its face and the payer is the one holding it.
- Double-counting card and platform payments. Those are reported by the processor; including them again overstates the contractor's income.
- Ignoring an expired W-8BEN. It has a validity period, and an expired form leaves the payer exposed to withholding.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
- Businesses (Internal Revenue Service)
- About Form 1099-NEC, Nonemployee Compensation (IRS)
- Recordkeeping (IRS)
Questions people also ask
I paid a contractor $1,900 in 2026. Do I file anything?
No federal Form 1099-NEC is required, because the 2026 threshold is $2,000 per payee for the calendar year. Two caveats: the contractor still owes tax on that income whether or not a form is issued, and some states set their own threshold, so check any state you have a filing obligation in before concluding nothing is due.
Does the $2,000 threshold apply to what I paid in 2025?
No. The higher threshold applies to payments made on or after 1 January 2026. Payments made during 2025 remain subject to the old $600 rule, and forms for the 2025 year were filed under it in early 2026. The first filing season under the new figure is January 2027.
I am a freelancer in Pakistan and my US client sent me a W-9. What do I do?
Do not sign it. Form W-9 certifies that you are a US person, which you are not. Send them a completed Form W-8BEN instead - it establishes your foreign status, is kept in their files rather than sent to the IRS, and it is the document that stops them withholding 24 per cent from your fee. Most clients ask for the W-9 by habit rather than by intent.
Do payments I made through PayPal or a card count towards the threshold?
No, and including them is a common double-count. Payments settled through a payment card or a third-party settlement organisation are reported by that processor on Form 1099-K, not by you on a 1099-NEC. Exclude them from your threshold tracking, but keep a record of why.
What happens if I never collect any tax form from a contractor?
You are expected to apply backup withholding at 24 per cent to reportable payments, and if you do not, the exposure sits with you as the payer rather than with the contractor. The fix is procedural rather than clever: no form, no first payment.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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