IRS Drafts 2026 1099-NEC and 1099-MISC: What’s New for Tips and Overtime

The IRS has released drafts of the 2026 versions of Form 1099-NEC and 1099-MISC, showing significant updates to how nonemployee compensation, tips, and overtime are reported. While the forms maintain their basic structure, several new boxes and revisions will affect how you report contractor payments in 2026.

Here is the 1099-NEC draft:

There are still seven boxes on this form, but box 1 has some changes:

• Box 1a - Nonemployee compensation. This is pay to your contractor; previously this was simply "Box 1."
• Box 1b - cash tips. These are included in 1a and represent the portion of tips that qualify for deduction on the contractor's personal tax return.
• Box 1c - treasury tipped occupation code. This code reflects the contractor's industry.
• Box 1d - overtime compensation. Qualifying overtime should be reported in Box 1a along with total compesation, and then separately detailed in Box 1d.

These changes give more transparency on what portion of payments are tips or overtime, helping ensure accurate reporting and compliance.

Here is the 1099-MISC draft:

The new boxes are the same as on the 1099-NEC, but the revisions are more substantial.

• Box 13 - Tips: Now split into 13a for cash tips and 13b for the occupation code. For qualifying tips, these would generally already appear in Box 3 (or Box 6, depending on the type of payment).
• Box 14 - Overtime compensation. Previously grayed out in 2025 forms, Box 14 now allows for overtime reporting. Overtime is reported along with other compensation in the applicable box (Box 3 or 6) and then detailed separately in Box 14.

Other boxes remain largely consistent with prior versions, but the changes to tip and overtime reporting are the most notable updates for AP teams to consider.

Why This Matters

If your contractors receive tips or overtime, these new boxes may change how you prepare your 2026 filings. Understanding the new layout and reporting requirements now will help you:

• Avoid errors when filing 2026 forms.
• Properly capture cash tips and overtime for compliance.
• Ensure your accounting and payroll systems can accommodate the new boxes.

Next Steps:

1. Review the draft forms. Make sure your team understands the new boxes and how they apply to your contractors.
2. Update internal processes. Adjust payroll and AP workflows to capture tips and overtime separately if needed.
3. Plan system updates. Ensure accounting software or reporting tools can handle the new 1a-1d breakdown (NEC) and Box 13-14 changes (MISC). 
4. Monitor IRS final releases. These drafts may change before the forms are officially released, so stay informed of any updates.

By preparing now, you can avoid year-end surprises and ensure accurate 1099 reporting for all your contractors in 2026.