US Invoice Rules: Sales Tax and the New 1099 Threshold

The US has no VAT, no federal sales tax and no mandated invoice layout — which makes it harder to know what belongs on the page, not easier. Here is what actually matters, including a 2026 threshold change most guides have not caught up with.

There is no federal invoice format — and that trips people up

If you have ever read a European invoicing guide you will have met a list of legally mandatory fields: a VAT number, a tax point, a sequential number, a rate-by-rate tax breakdown. Miss one and the invoice is defective. US freelancers and small businesses read that and reasonably ask which American law says the same thing.

None does. There is no federal sales tax, no VAT, and no statute prescribing what an invoice must look like. What exists instead is an evidentiary standard: the IRS expects records that clearly establish your income and support any deduction you claim. An invoice is the document that does that job, so its real requirement is that it be detailed enough to prove the transaction happened, to whom, for what, and for how much.

In practice that means every invoice should carry your legal or DBA name and address, the client's name and address, a unique invoice number, the issue date, a clear description of what you supplied, the amount, and your payment terms. Not because a rule names those fields, but because an invoice missing them cannot do the one thing it exists to do.

Sales tax is a state problem, not a federal one

The complexity that VAT countries put into one national system, the US distributes across fifty states plus local jurisdictions. Five states levy no state sales tax at all. Among the rest, what is taxable differs — tangible goods are taxable almost everywhere sales tax exists, while professional services are taxable in some states and not others.

Two rules matter most when you are writing the invoice itself.

Sourcing is usually destination-based. The rate generally follows where the buyer takes delivery, not where you sit. A seller in one state billing a customer in another typically charges the customer's combined state and local rate, which is why the city or county layer stacked on top of the state rate is so easy to miss.

Tax must be stated separately. This is the single most common invoicing error. Folding tax into the unit price so the invoice shows one round number is not acceptable in most states, and it makes your own filing harder because you can no longer show what you collected. Show the taxable subtotal, the rate, the tax amount and the total as distinct lines.

Whether you owe any of this in a given state depends on nexus. Physical presence has always created it; since the Supreme Court's 2018 decision in South Dakota v. Wayfair, economic activity can too. Most states set a threshold around $100,000 in annual sales or 200 separate transactions, though the figures vary and several states have since dropped the transaction-count test. Cross a threshold and you are expected to register, collect and remit in that state.

The 1099-NEC threshold changed for 2026

This is the part most invoicing advice still gets wrong, because it repeats a number that is now out of date.

For years, a business paying an unincorporated contractor $600 or more in a year had to file Form 1099-NEC. For the 2026 tax year that threshold rose to $2,000, and it is indexed for inflation from here. If you are reading a guide that still says $600 without qualification, it predates the change.

Two things are worth being precise about, because they are routinely confused:

1. The threshold is your client's filing obligation, not your tax obligation. If a client pays you $1,500 across the year, they generally will not issue a 1099-NEC — and you still owe income tax and self-employment tax on that $1,500. Income is taxable whether or not a form reports it.
2. It is the annual total that counts, not the individual invoice. Four separate $600 invoices to the same client is $2,400 for the year, which is over the line even though no single invoice comes close.

The threshold also has exceptions. If backup withholding was applied to a payment, the payer must report it regardless of amount.

W-9s and the 24% that can vanish

Before a business client pays you for the first time, they will normally ask for a Form W-9 carrying your taxpayer identification number — an SSN, or an EIN if you have one. It is worth getting an EIN precisely so you are not putting your Social Security number on a document that circulates through other companies' accounts payable systems.

If you do not supply a valid TIN, the payer is required to apply backup withholding at 24% and send it to the IRS rather than to you. The money is not lost — it is credited against your tax bill — but it lands months later instead of on payment day, which is a real cash-flow event for a small business. The fix is administrative: return the W-9 before you invoice.

What this looks like on a real invoice

Take a $4,000 project for a business client, in a situation where you have nexus in the client's state and what you are selling is taxable there at a combined 8.25%.

• Subtotal: $4,000.00
• Sales tax at 8.25%: $330.00
• Total due: $4,330.00

Three separate lines, not one figure of $4,330. You need the split for your own state filing, the client needs it to book the tax correctly, and an auditor on either side needs it to reconcile the transaction. If the same work were sold into a state where you have no nexus, or where that service is not taxable, the invoice would show $4,000 with no tax line at all — and that absence is normal, not an error.

Our invoice generator shows tax as its own line by default and can apply a different rate per line item, which matters when one invoice mixes taxable goods with non-taxable services. The sales tax calculator handles the rate arithmetic, and the hourly rate calculator works backwards from the income you actually want to the rate you need to quote.

Keep the records longer than you think

The IRS generally expects you to keep records supporting a return until the period of limitations runs out — commonly three years, extending to seven in some circumstances. State sales tax rules frequently reach further, and where a required return was never filed, some states apply no limitation period at all.

Electronic records are acceptable provided they are legible and you can produce them on request. A PDF of every invoice, stored somewhere that survives a laptop failure, satisfies this. Given how far state requirements can extend beyond the federal floor, a seven-year retention habit is the simpler policy than trying to track a different clock per jurisdiction.

This is general information for planning, not tax advice. Sales tax nexus and service taxability vary by state and change often — check with a CPA or your state revenue department for your own situation.