14 May Michigan Small Businesses and the New 1099 Thresholds: What You Need to Know
Starting in 2026, Michigan small business owners will file significantly fewer 1099 forms — but accurate recordkeeping remains just as critical as before. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, raises the reporting thresholds for Form 1099-NEC and Form 1099-MISC from $600 to $2,000 and reinstates the original 1099-K thresholds. Here’s what these changes mean in practical terms for your Michigan small business taxes, and the steps you should take to stay compliant.
What’s Changing — and When
Section 70433 of the OBBBA increases the minimum reporting threshold for 1099-NEC and 1099-MISC from $600 to $2,000, effective for payments made on or after January 1, 2026. Backup withholding requirements are similarly raised to $2,000. Both the reporting threshold and the backup withholding threshold will be indexed for inflation beginning in calendar year 2027.
For the 2025 tax year, the old $600 threshold still applies. Forms issued in January 2026 covering 2025 payments must follow the existing rules. Using the wrong threshold for 2025 could result in missed filings or penalties.
Section 70432 of the same law reinstates the original 1099-K thresholds: third-party settlement organizations such as PayPal, Venmo, and Stripe must report only when a payee receives over $20,000 in total payments and completes over 200 transactions in a calendar year. This reversal is retroactive to 2022, undoing the American Rescue Plan Act of 2021’s reduction to $600.
Fewer Forms Does Not Mean Less Recordkeeping
For many Michigan small business owners who rely on independent contractors, these higher thresholds will reduce the number of 1099 forms filed each year. Contractors receiving between $600 and $1,999 annually will no longer receive a 1099-NEC beginning in 2026. However, all payments to contractors remain taxable income for the recipient regardless of whether a form is required. From the payer’s side, those payments still support business deductions and must be available for IRS audit defense.
A common misconception is that no form means no obligation. In reality, businesses must still issue Form 1099-NEC when they pay contractors directly and exceed the $2,000 threshold — even if the contractor also receives payments through a third-party platform that may or may not trigger a 1099-K. Understanding the difference between direct payments and third-party settlement organization reporting helps prevent both duplicate and missed filings.
Michigan State-Level Considerations
The State of Michigan follows federal IRS guidelines for determining which 1099 forms are required. “Income record forms” — state copies of W-2s and 1099s with a Michigan impact — must still be filed with the Michigan Department of Treasury. This is particularly relevant if you withhold Michigan state income tax from contractor payments.
Michigan is also lowering its electronic filing threshold from 250 forms to 10 beginning with tax year 2025 (due in 2026), aligning with IRS e-filing standards. Free electronic filing is available through Michigan Treasury Online at mto.treasury.michigan.gov. Even if you issue only a handful of 1099s, you may now need to e-file them with the state.
Compliance Checklist: Actionable Steps for Michigan Small Business Owners
To adapt your small business accounting in Michigan and maintain 1099 compliance, take these steps:
- Collect W-9 forms from every contractor before the first payment. Having a valid Taxpayer Identification Number (TIN) on file reduces the risk of incorrect filings and avoids triggering backup withholding.
- Update your accounting software settings to reflect the new $2,000 threshold for 1099-NEC and 1099-MISC. Ensure vendor classification and expense categories are mapped correctly for 2026 payments.
- Monitor contractor payment totals throughout the year. Keep a running total for each vendor rather than scrambling in January. If payments are approaching $2,000, prepare to issue a 1099-NEC by the January 31 filing deadline.
- Reconcile direct payments against third-party platform payments. Track which payments you made directly (triggering your 1099-NEC obligation at $2,000) versus those processed through platforms like PayPal or Venmo (subject to the separate $20,000/200-transaction 1099-K threshold). You remain responsible for reporting your direct payments regardless of what the platform reports.
- Document contractor relationships in writing. Maintain contracts or agreements that clarify each worker’s independent contractor status, scope, and payment terms. Save invoices, receipts, and communications that substantiate each payment’s business purpose.
- Comply with Michigan’s e-filing requirements. If you issue 10 or more W-2 and 1099 forms for the tax year, file electronically with the Michigan Department of Treasury through Michigan Treasury Online.
- Review vendor onboarding workflows now. Evaluate your current contractor spending patterns to determine whether you’ll issue more or fewer forms under the new thresholds and update your intake processes accordingly.
The Bottom Line
The raised 1099-NEC and 1099-MISC thresholds and the 1099-K reversion to $20,000/200 transactions represent the most significant changes to IRS reporting requirements for information returns in decades. Michigan small businesses that depend on independent contractors will benefit from reduced filing volume — but the obligation to track, categorize, and document every contractor payment remains unchanged. Proactive planning during 2025 and early 2026 will make the transition smooth and help you avoid costly penalties.
If you need help updating your vendor-payment tracking systems, understanding how these thresholds apply to your specific situation, or ensuring compliance with both federal and Michigan filing requirements, reach out to your CPA — the right guidance now can save your business time, money, and stress when filing season arrives.