Preparing Forms 1099-MISC and 1099-NEC may look different for businesses and nonprofit organizations beginning with the 2026 tax year.
The IRS has updated these forms and their instructions to reflect provisions enacted under the 2025 tax legislation. The changes include a higher reporting threshold for many payments, new fields for cash tips and qualified overtime compensation, Treasury Tipped Occupation Codes, and revised reporting for excess golden parachute payments.
Although the increased threshold may reduce the number of forms some organizations must issue, the new reporting fields create additional recordkeeping responsibilities. Organizations should begin reviewing their accounting, payroll, accounts payable, and vendor-management systems before year-end.
Here is what businesses, tax professionals, and nonprofit leaders need to know about the 2026 Forms 1099-MISC and 1099-NEC changes.
What Are Forms 1099-MISC and 1099-NEC?
Form 1099-NEC is generally used to report compensation paid to individuals or businesses that are not employees, such as independent contractors, consultants, and professional service providers.
Form 1099-MISC is used for several other reportable payments, including certain rents, prizes and awards, royalties, medical and health care payments, and other types of miscellaneous income.
Organizations must provide the appropriate form to the recipient and file it with the IRS when payments meet the applicable reporting rules.
Nonprofit status does not automatically exempt an organization from these requirements. A nonprofit that pays independent contractors, landlords, attorneys, health care providers, or other vendors may still have Form 1099 filing responsibilities.
The Reporting Threshold Increases to $2,000
One of the most important changes for 2026 is the increase in the information-reporting threshold for several categories of payments.
For payments made after December 31, 2025, the threshold generally increases from $600 to $2,000 for nonemployee compensation and several types of payments reported on Form 1099-MISC. The IRS identifies affected categories that include rents, prizes and awards, other income, certain attorney payments, and nonemployee service compensation.
This means an organization that pays an independent contractor $1,500 during 2026 may generally no longer need to issue Form 1099-NEC solely because of that payment, assuming no other reporting rule applies.
Similarly, certain payments that previously triggered Form 1099-MISC at $600 may not require reporting unless the recipient receives at least $2,000 during the calendar year.
What the Higher Threshold Means for Organizations
The change may reduce administrative work for organizations that make smaller payments to multiple vendors or contractors.
Potential benefits include:
- Fewer Forms 1099 to prepare and distribute
- Lower filing and processing costs
- Fewer taxpayer identification numbers to collect for low-dollar payments
- Reduced risk of filing errors for small transactions
- Less year-end administrative pressure
However, organizations should not assume that every Form 1099 threshold has increased to $2,000.
For example, the threshold for certain royalty payments remains $10, and backup withholding can create a reporting requirement regardless of the payment amount. The appropriate form and threshold still depend on the type of payment and the recipient.
Organizations should continue reviewing each payment category individually.
Future Inflation Adjustments
The $2,000 threshold may be adjusted for inflation in future years.
Beginning after 2026, organizations may need to verify the applicable threshold each year rather than relying permanently on the initial $2,000 amount.
Accounting policies, vendor procedures, and year-end checklists should therefore avoid hard-coding the threshold without an annual review process.
New Cash Tip Reporting Fields
Forms 1099-MISC and 1099-NEC have been updated to allow payers to separately identify cash tips.
The 2026 Form 1099-NEC includes:
- Box 1a: Total nonemployee compensation
- Box 1b: Cash tips
- Box 1c: Treasury Tipped Occupation Code
- Box 1d: Overtime compensation
Cash tips reported in Box 1b are also included in the total nonemployee compensation reported in Box 1a. The recipient may use the separately reported amount when determining eligibility for the qualified tip deduction.
The 2026 Form 1099-MISC similarly includes:
- Box 13a: Cash tips
- Box 13b: Treasury Tipped Occupation Code
- Box 14: Overtime compensation
For Form 1099-MISC, cash tips entered in Box 13a must also be included in the applicable income total reported elsewhere on the form.
What Counts as Cash Tips?
For this reporting purpose, cash tips generally include tips received in physical cash as well as tips charged by customers.
Organizations that make payments involving tipped services may need to separate qualifying tip amounts from other compensation in their accounting records.
Simply recording one combined payment amount may no longer provide enough information to complete the revised forms accurately.
Treasury Tipped Occupation Codes
Payers may also be required to report a Treasury Tipped Occupation Code, commonly called a TTOC.
The code identifies the occupation in which the payee received tips and helps the recipient determine whether those tips may qualify for the federal tip deduction.
The revised instructions allow the payer to report up to two occupation codes. When tips were earned in more than two occupations, the payer may report codes for two of those occupations.
When any tips were received in an occupation that does not qualify, code 000 must be entered as one of the applicable codes.
This creates a new data-collection requirement. Organizations may need more than the payee’s name, address, and taxpayer identification number. They may also need reliable information about the specific occupation connected to the tipped services.
New Qualified Overtime Compensation Boxes
The revised Forms 1099-MISC and 1099-NEC also include separate fields for qualified overtime compensation.
For Form 1099-NEC, qualified overtime compensation is reported in Box 1d and included in the total reported in Box 1a.
For Form 1099-MISC, qualified overtime compensation is reported in Box 14 and included in the applicable Box 3 amount.
The IRS instructions define qualified overtime compensation as the portion of compensation required under Section 7 of the Fair Labor Standards Act that exceeds the individual’s regular rate. In the common time-and-a-half arrangement, only the additional “half” portion is separately reported, not the employee’s full overtime payment.
Example of Qualified Overtime Reporting
Assume an individual’s regular rate is $20 per hour and the applicable overtime rate is $30 per hour.
For one overtime hour:
- Regular-rate portion: $20
- Additional overtime premium: $10
- Total overtime payment: $30
The separately identified qualified overtime compensation would generally be the additional $10, not the entire $30.
Organizations must therefore be able to distinguish the regular-rate portion from the qualifying overtime premium.
Excess Golden Parachute Payments Move to Form 1099-NEC
Another notable change involves excess golden parachute payments.
Beginning with the revised Form 1099-NEC, excess golden parachute payments are reported in Box 3 rather than on Form 1099-MISC.
The instructions describe an excess parachute payment as the portion exceeding the recipient’s applicable base amount. This type of payment is generally associated with certain compensation arrangements triggered by a change in corporate ownership or control.
Although this provision may not affect most small businesses or nonprofits, organizations involved in executive compensation arrangements, reorganizations, or change-in-control agreements should review the updated form carefully.
How the Changes Affect Nonprofit Organizations
Nonprofits frequently use independent contractors and outside service providers, including:
- Fundraising consultants
- Grant writers
- Accountants and attorneys
- Marketing professionals
- Speakers and event contractors
- Technology consultants
- Maintenance providers
- Program instructors
- Medical or health care providers
- Landlords and property managers
The higher threshold may reduce the number of forms a nonprofit must prepare. However, the organization still needs accurate year-to-date payment records to determine whether each recipient has crossed the applicable threshold.
The new tip, occupation-code, and overtime fields may also affect nonprofits operating in industries such as hospitality, events, food service, recreation, transportation, personal services, or community programs.
Recordkeeping and System Updates to Consider
The revised forms require more detailed information than many organizations currently collect.
Before year-end, businesses and nonprofits should review whether their systems can separately track:
- Total nonemployee compensation
- Cash and charged tips
- The occupation connected to tipped income
- Applicable Treasury Tipped Occupation Codes
- Qualified overtime premiums
- Rents and other miscellaneous payments
- Medical and health care payments
- Excess golden parachute payments
- Backup withholding
- Annual payments by vendor and payment category
A single general-ledger account labeled “contract labor” may not provide enough detail for the revised reporting requirements.
Organizations may need to create new payroll or accounting fields, update their chart of accounts, or coordinate with software vendors to ensure the required data can be extracted.
Review Form W-9 Procedures
Even though fewer recipients may exceed the new $2,000 threshold, organizations should continue collecting Form W-9 before making reportable payments.
A completed Form W-9 helps confirm the recipient’s:
- Legal name
- Business name
- Federal tax classification
- Address
- Taxpayer identification number
- Backup-withholding status
Waiting until January to request this information can delay filing and increase the risk of errors.
The higher reporting threshold should not be treated as a reason to discontinue vendor onboarding controls.
Confirm Worker Classification
The changes to Form 1099-NEC do not alter the rules for determining whether someone is an employee or an independent contractor.
Organizations must still classify workers based on the facts and circumstances of the working relationship.
Employees generally receive Form W-2, while qualifying payments to independent contractors are reported on Form 1099-NEC. The IRS specifically distinguishes employee wage reporting from payments made to people who are not employees.
Misclassifying an employee as an independent contractor can result in payroll tax liabilities, penalties, interest, and benefit-related complications.
Prepare for the Transition to IRIS
The IRS has also announced an important electronic-filing change.
Beginning with the 2027 filing season for 2026 information returns, the Information Returns Intake System, or IRIS, is expected to become the IRS’s sole intake system for information returns. The older FIRE system will no longer be available after its shutdown. The IRS encourages filers to obtain an IRIS Transmitter Control Code and begin transitioning before the filing season begins.
Organizations that currently file electronically through FIRE should not wait until the filing deadline to address this transition.
They should confirm whether:
- Their payroll provider will file through IRIS
- Their tax software supports the new forms
- A new transmitter application is required
- Staff need additional access or training
- Prior-year corrections can be handled through the selected system
Practical Steps to Take Before 2026 Year-End
Organizations can begin preparing by taking the following steps:
Review Vendor Payment Records
Identify all contractors and vendors who may receive reportable payments during 2026.
Update Accounting Categories
Create separate categories for tips, overtime premiums, rents, contractor compensation, and other reportable payments when necessary.
Coordinate With Payroll and Software Providers
Confirm that systems will support the revised Form 1099 boxes and electronic-filing requirements.
Verify TTOC Information
Determine whether the organization makes payments involving tipped occupations and identify how the applicable codes will be collected.
Continue Collecting Forms W-9
Obtain accurate taxpayer information before or at the beginning of each vendor relationship.
Review the New Threshold Carefully
Update internal procedures from $600 to $2,000 only for payment categories covered by the change.
Plan for IRIS Filing
Confirm who will submit the forms and whether the organization needs its own IRIS account or transmitter credentials.
Train Relevant Staff
Accounts payable, payroll, finance, and human resources personnel should understand the new data requirements before year-end processing begins.
Final Thoughts
The 2026 Forms 1099-MISC and 1099-NEC changes offer some administrative relief by increasing the reporting threshold for many payments from $600 to $2,000. At the same time, new boxes for cash tips, Treasury Tipped Occupation Codes, and qualified overtime compensation require organizations to capture more detailed information.
For businesses and nonprofits, the most important step is preparation. Accounting and payroll systems should be reviewed before year-end, vendor records should remain current, and staff should understand which payment categories are subject to the new threshold.
Organizations should also prepare for the transition to IRIS and confirm that their tax software or filing provider supports the revised forms.
Because reporting requirements can vary based on the type of payment and recipient, organizations should consult their tax advisor when applying the updated rules to specific transactions.
