Recent tax law changes under President Trump’s tax package reduce IRS reporting requirements for small businesses and freelancers, easing administrative burdens but potentially increasing income underreporting and widening the tax gap.
Recent changes in tax laws under President Donald Trump’s tax and spending cuts package, also dubbed “One Big Beautiful Bill”, have reduced the Internal Revenue Service (IRS) reporting requirements for small businesses, freelancers, and independent contractors, impacting third-party income reporting.
Payment Apps (1099-K Forms)
Under the American Rescue Plan Act, the threshold for payment platforms to issue 1099-K forms to the IRS was reduced from USD 20,000 (with over 200 transactions) to USD 600, eliminating the transaction count requirement. Initially set to take effect in 2021, the change was delayed and partially implemented. For tax years 2024 and 2025, reporting is required for business transactions exceeding USD 5,000 in 2024 and USD 2,500 in 2025.
1099-NEC and 1099-MISC Forms
A new law significantly changes reporting requirements for businesses, raising the threshold for issuing 1099-NEC or 1099-MISC forms for non-employee compensation from USD 600 to USD 2,000, effective after 31 December 2025, with annual inflation adjustments. This impacts nearly all US businesses, as they are required to report payments to independent contractors and vendors, such as landscapers, cleaning staff, and service providers.
Impact of these changes
A reduction in paperwork aims to ease administrative burdens for small businesses and lower penalty risks. Still, it may leave freelancers and contractors with fewer third-party records, increasing the risk of underreporting income. This change could result in a USD 13 billion decrease in IRS collections over the next decade, thereby widening the tax gap due to underreported income among freelancers and sole proprietors.
Trump signed the “One Big Beautiful Bill” into law on 4 July 2025.
