Businesses Should Prepare for New Information Reporting Rules in 2026

Businesses with employees or independent contractors are seeing several changes to federal information reporting requirements this year. While some updates increase employer reporting responsibilities, others provide long-awaited relief for businesses that issue Forms 1099.

Updates for Reporting Tips and Overtime

Employees who receive qualified tips or qualified overtime pay are now eligible for new federal income tax deductions. Even so, these amounts are still treated as taxable wages for payroll purposes, meaning employers must continue withholding federal income and payroll taxes as usual.

For the 2025 tax year, the IRS didn’t require employers to separately report qualified tips or qualified overtime amounts on payroll tax forms. However, updated reporting rules are expected to take effect beginning with 2026 payroll reporting.

Employers should be reviewing payroll systems now to ensure they’re prepared to properly track and report these amounts once final requirements are released.

Updated W-2 Reporting

The IRS has already released a draft version of the 2026 Form W-2 that includes new reporting fields:

• Qualified tips income

• Qualified overtime income

• Employer contributions to Trump accounts

The draft form also adds a field allowing employers to report occupation codes for employees who receive qualified tips income. These occupation codes are tied to IRS guidance identifying industries eligible for the tips deduction.

Eligible occupations generally fall within industries such as hospitality, food service, beauty and wellness, entertainment, recreation, and transportation.

Form 1099 Threshold Increases

A major change that will benefit many businesses is the increased threshold for Form 1099 reporting. Previously, companies needed to issue Forms 1099-NEC or 1099-MISC when paying $600 or more to a vendor or service provider within that given year.

Beginning in 2026, the reporting threshold will increase to $2,000, and future adjustments for inflation are anticipated. This higher threshold could reduce the number of information returns some businesses must prepare and file beginning in early 2027.

Prepare

While not all guidance has been issued yet, companies should start assessing if their payroll systems, bookkeeping practices, and vendor tracking methods are prepared for forthcoming reporting updates.

Staying proactive now can help avoid compliance issues and last-minute reporting headaches later. Need help? Let your VAAS Tax Advisors take a look. Schedule an consultation before the end of the year to prepare.