Changes Coming to Information Reporting for the 2026 Tax Year

December 15, 2025

If your business has employees or works with independent contractors, you already know how important annual information reporting is. Starting with the 2026 tax year, the One Big Beautiful Bill Act (OBBBA) introduces significant changes that will impact these rules. Here’s what you need to know.

What’s New for Tips and Overtime Income?

From 2025 through 2028, OBBBA creates new federal income tax deductions for employees who earn:

  • Qualified tips income
  • Qualified overtime income

These deductions do not exclude income from taxation. Federal payroll taxes and income tax withholding still apply, and state/local taxes may also apply.

What Does This Mean for Employers?

For 2025, the IRS confirmed there will be no changes to federal information returns or payroll forms, including Form W-2; Forms 1099; and Form 941. However, employers should be ready to answer employee questions about eligibility for these deductions, especially regarding overtime and Fair Labor Standards Act status.

Eligible Occupations for Tips Deduction

In September 2025, the IRS proposed regulations listing dozens of occupations eligible for the tips deduction. Each occupation will have a three-digit code for reporting purposes starting in 2026.

These occupations fall into eight categories.

  • Beverage & food service
  • Entertainment & events
  • Hospitality & guest services
  • Home services
  • Personal services
  • Personal appearance & wellness
  • Recreation & instruction
  • Transportation & delivery

Sneak Peek: Draft 2026 Form W-2

The IRS released a draft of the 2026 Form W-2 with new reporting features:

  • Box 12 Codes:
    • TA – Employer contributions to Trump accounts (new tax-advantaged savings for children starting in 2026)
    • TP – Total qualified tips income
    • TT – Total qualified overtime income
  • Box 14b: Employee occupation code for tips deduction eligibility

Reporting Relief: Higher 1099 Thresholds

OBBB also brings good news: simplified reporting rules starting in 2026.

  • The threshold for Forms 1099-MISC and 1099-NEC jumps from $600 to $2,000, with inflation adjustments after 2026.
  • This change applies to payments made after 2025 and will affect returns filed in early 2027.

Stay Ahead of the Curve

More IRS guidance is expected on reporting requirements for tips and overtime deductions. Final 2026 forms will be released soon.

Action Steps for Businesses:

  • Prepare for new W-2 reporting codes.
  • Understand which employees qualify for deductions.
  • Adjust processes for the higher 1099 threshold.

Contact us today to ensure your business is ready for these changes.

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John George

John George

CPA

Principal

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