If your small business pays independent contractors, service vendors, or freelancers, you are familiar with the Form 1099-NEC filing requirement. For years the federal threshold has been $600 — pay any non-employee $600 or more during the year and you must file a 1099. That threshold is now increasing to $1,000 for most payments under the One Big Beautiful Bill.
For businesses with many small-dollar vendor relationships — a restaurant that hires occasional help, a retailer with part-time contractors, a salon with booth renters — this change reduces paperwork. But there are important carve-outs, and California's rules are not changing. Here is what Bay Area business owners need to know.
The federal 1099-NEC threshold rises to $1,000. California stays at $600 for state reporting. Attorneys, rents, and gross proceeds from real estate transactions retain their own lower thresholds regardless of this change.
What Changed — and What Didn't
The new $1,000 threshold applies to the general 1099-NEC category: payments to non-employees for services rendered in the course of your trade or business. Think contractors, consultants, freelancers, and independent service providers who are not incorporated.
Several categories are not affected by this change and retain their own thresholds:
| Payment Type | Form | Federal Threshold | Notes |
|---|---|---|---|
| Non-employee compensation (general) | 1099-NEC | $1,000 (new) | Applies to most contractor payments |
| Attorney fees (legal services) | 1099-NEC | $600 | Unchanged — attorneys have a separate threshold |
| Rent payments | 1099-MISC | $600 | Unchanged — paid to landlords for office/commercial space |
| Gross proceeds to attorneys | 1099-MISC | $600 | Settlement payments through an attorney's account |
| Medical and health care payments | 1099-MISC | $600 | Unchanged |
If your business pays rent directly to an individual landlord, that obligation to file a 1099-MISC at $600 remains. If you regularly pay an attorney for business legal services, the $600 threshold still applies. The $1,000 change benefits mostly the contractor and freelancer payment category.
California Does Not Conform
California requires 1099 reporting for the same categories of payments but retains the $600 threshold for state purposes. This means you may need to file a 1099 for California even when no federal 1099 is required.
For example: you pay a freelance graphic designer $800 during the year. Under the new federal rule, no 1099-NEC is required federally. But California still requires you to file — the payment exceeds $600. You will need to track and report this for California even without a federal counterpart.
In practice, most small businesses should continue tracking all contractor payments above $600, because the California reporting obligation has not changed. The federal threshold increase primarily reduces federal filing, not your recordkeeping burden.
Corporations Are Still Exempt (With Exceptions)
A longstanding rule that does not change: payments to corporations are generally exempt from 1099 reporting. You do not need to file a 1099-NEC for a contractor payment to an S-corp or C-corp. The exceptions remain: attorney fees paid to incorporated law firms and medical payments to incorporated providers still require filing.
This means the most common scenario where the $1,000 threshold helps is when you hire individuals and single-member LLCs (treated as disregarded entities) for contract work. Payments to incorporated vendors were already exempt in most cases.
W-9 Collection Still Required
The threshold change does not reduce your obligation to collect Form W-9 from contractors. You should still request a W-9 from any vendor at the start of the relationship, before the first payment, regardless of how much you ultimately pay them. If you do not have a W-9 on file and end-of-year payments cross the reporting threshold, you are required to apply backup withholding — currently 24% — on all payments.
Collect W-9s upfront. Do not wait until January to gather taxpayer information. By then, some contractors have moved, changed names, or stopped responding, and the IRS backup withholding obligation falls on you if the TIN is missing or incorrect.
What Bay Area Businesses Should Do
- Do not stop collecting W-9s from contractors below $1,000. California still requires reporting at $600, and you may not know the final-year payment amount at the beginning of the relationship.
- Update your year-end 1099 checklist to flag payments between $600 and $999 for California-only filings. Your accountant can help you separate federal and state obligations in January.
- Verify that your payroll or 1099 software handles dual-threshold filing. Some platforms will need manual overrides to generate California-only forms for payments in the $600–$999 range.
- Attorney and rent payments stay at $600 for both federal and California. Do not apply the new $1,000 threshold to those categories — it does not apply.
Need Help with 1099 Filing for Your Business?
B&H handles contractor reporting, W-9 tracking, and year-end 1099 preparation for small businesses throughout Milpitas, San Jose, Fremont, and Santa Clara.
Call 408-256-0339