Episode 33: IRS Releases 2026 Version of 1099-NEC and 1099-MISC

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Welcome to this week's episode of Information Return Intelligence, where we talk about all things related to 1099s and other things in the information return world. The IRS has published the final versions of the 2026 updates to 1099 NEC and 1099 Miscellaneous, and that is the topic of this week's show, powered by IOFM, the Institute of Finance and Management. My name is Jason Dinison. I'm an enrolled agent. I am a practicing tax professional and have been teaching on 1099s for over 14 years now. So the IRS has released the 2026 revisions to the 1099 NEC and miscellaneous. There are really two changes. One is actually an actionable item for you, and the other is cosmetic. Those two changes are new boxes for reporting of tips and overtime. This is the actionable item that we'll really be talking about today. And the other is that the address box now contains separate fields for various items. It used to just be one box where everything with the person's address was thrown into. Now each field, like city, state, zip, has its own box on the form. That is one of those cosmetic FYI changes. Let's talk about the change that's an actionable item for you, and that is new boxes for tips and overtime. If you look at 1099 NEC, you have box one has always been non-employee compensation. And now box one is split into four boxes. One A is non-employee compensation, one B is cash tips, one C is TTOC, which means Treasury Tipped Occupation Code, and 1D is overtime compensation. And if you look at the miscellaneous, it's the same new boxes for tips and overtime, just in a different spot. Box 13A is cash tips, 13B is the Treasury Tipped Occupation Code, and Box 14 is overtime compensation. The FATCA filing requirement checkbox, which had its own line or box number last year, no longer has a box number. It's just on its own as a box on the form to check on the miscellaneous. So what is this all about? Well, the big beautiful bill signed into law last year creates new deductions on personal tax returns for qualifying tips and qualifying overtime received by a worker. Employers have to report the qualifying amounts on the W-2. Now just stick with me here, the W-2, which has been updated to add new codes to box 12 to facilitate that reporting. And you might say, well, why are we talking about this and why are these boxes on a 1099 when this is always going to be a W-2 employee issue? Well, my response to you would be it's the word always. That's always a gotcha word with taxes. Because very rarely is it always. It's accurate to say this would usually be a W-2 thing, but not always. So the big beautiful bill says qualifying overtime for this deduction is overtime mandated by section seven of the Fair Labor Standards Act. That is the federal labor law that says if an employee is not exempt and they work more than 40 hours in a week, they are entitled to overtime at a rate of at least time and a half. And just for the sake of completeness, there are other job types like law enforcement also covered by section seven of FLSA, but with a different measurement period than a 40-hour work week. The bottom line is if FLSA section seven applies, then it is qualifying overtime. FLSA covers employees, but not contractors. And that's where things get, I guess insert your own adjective. It gets cloudy, it gets complicated, it gets head spinning, whatever you want to say it gets, it gets. So let's break it down. The Department of Labor enforces the Fair Labor Standards Act. And with worker classification, is your worker an employee or are they a contractor? The DOL uses a test called economic realities. The IRS enforces tax law. That's where the overtime deduction comes from. It's also where 1099 and W-2 reporting come from. The IRS also has a worker classification test, but it's different from the DOL test. And that's where potential 1099 reporting comes into play. You could arrive at different conclusions for each agency when looking at a worker. A worker might be an employee in the eyes of the DOL, but a contractor for the IRS. And if they're an employee for DOL purposes, then that means FLSA might apply to them and you might have to pay them overtime. But if that person's a contractor in the eyes of the IRS, they won't be getting a W 2, they get a 1099. So you could straight up have a worker who's classified one way for one agency and another way for another agency. I personally don't think that that's likely for most of you. Typical organizations working with typical contractors or typical workers, you're going to arrive at the same conclusion when you do worker classification analysis, whether it's the DOL tests or the IRS tests, they are different, but I'll bet you're going to arrive at the same conclusion the vast majority of the time. However, it could happen that you legitimately arrive at different outcomes under each test. The other area that I think would be much more common for you is if you've ever undergone a worker classification audit by the IRS and gotten what's called Section 530 relief. That relief impacts the IRS's ability to reclassify contractors to employees. If you qualify, the law actually prohibits them from reclassifying for federal tax purposes. You might have to reclassify them for other purposes. And that would be a much more common area where you would be paying an employee for DOL purposes, but reporting it on a 1099 would be those Section 530 workers. So if you've ever had an IRS audit and you received Section 530 relief, talk to, I always say, the applicable party on your side to see if you have any exposure to the Fair Labor Standards Act with those workers. And if you do, then you might have this issue of paying overtime and reporting it on a 1099. Payment of tips might be more common for typical organizations to report on a 1099. We will talk about tips next after we hear a word from our sponsor, IOFM. The Institute of Finance and Management is the leading organization providing training, education, and certification programs specifically for professionals and accounts payable, procure to pay, accounts receivable, and order to cash, or whatever it is that your organization calls those functions. As well as key tax and compliance resources for global and shared services professionals, controllers, and finance and accounting teams. IOFM is the trusted source of information in the rapidly evolving field of financial operations. Check them out at IOFM.com. And now back to the show. So tip reporting would be more common. For big beautiful bill purposes, a qualifying tip is a tip that's paid in cash or charged to a card, paid voluntarily by the customer, and paid to a worker employed in an industry where tipping is customary. So if you ever pay a tip to a contractor, that might be reportable by you now on a 1099. If it's an otherwise 1099able transaction, it would be part of a contract labor. And then if you're issuing a 1099, you'd have to break out the qualifying tips separately on the 1099 along with the Treasury tipped occupation code. So it's if you ever pay tips to a contractor, and that contractor is employed in a business, in other words, they work in a business where tipping is customary, you might have to separately report the tip on the 1099 that you send to them. Now this gets complicated because if you're below the overall reporting threshold for the year, you're not going to issue a 1099. If you pay your contractor using a credit card or a debit card, you don't have a reporting obligation, even if you paid a tip. So there's a lot of nuances that go into it. The other thing is you might pay a tip to a contractor, but if they're not on that list of 71 occupations where tipping is customary, then you don't have to separately report it. So that's another talk to the applicable party and get a plan in place. The whole tips thing would only apply if you ever pay tips to an independent contractor. Then you would need to worry about this. In future episodes, we'll talk more about the tip side of this. How do you know what industry your contractor is working in? What are some best practices for determining that? But that'll do it for now. I'm Jason Dynason. Thank you so much for joining us for Information Return Intelligence powered by IOFM. We will talk to you again next week. Dynason Media Ventures.