New 1099 Boxes for Tips and Overtime: What Issuers Need to Know

July 1, 2026

The IRS has released the 2026 revisions to Forms 1099-NEC and 1099-MISC. The revisions contain two changes, one of which is an actionable item for issuers of 1099s, and the other one which is cosmetic.

The two changes are:

New boxes for reporting tips and overtime — this is the “actionable item.”
The address box now contains separate fields for various items, such as city and state. This is a cosmetic FYI change.

Let’s focus on the new boxes for tips and overtime.

Background

The One Big Beautiful Bill (OBBBA), signed into law last year, creates new deductions on personal tax returns for qualifying tips and overtime received by a worker. Employers are required to report qualifying amounts, and the Form W-2 has been updated to add new codes to box 12 to facilitate this reporting.

You might say, rightly, that tips and overtime are employee issues that will always be reported on a W-2. The problem with saying that is the word “always.” It’s accurate to say that tips and overtime will “usually” be employee issues reported on a W-2 — but not “always.”

Overtime

OBBBA says qualifying overtime for this deduction is overtime mandated by Section 7 of the Fair Labor Standards Act (FLSA). FLSA is the federal labor law that says non-exempt employees must receive overtime at a rate of at least time-and-a-half for hours worked in a workweek in excess of 40 hours. (NOTE: some job types, such as law enforcement, are also covered under the Section 7 of FLSA but have a different measurement period for determining if overtime applies. The point is, if FLSA Section 7 applies, it’s qualifying overtime.)

FLSA covers employees, not contractors. But here’s where it gets potentially cloudy.

The Department of Labor (DOL) enforces FLSA. The DOL uses a test called the economic realities test to determine worker classification, or to answer the question, “Is that worker an employee or are they a contractor?”

The IRS enforces tax law. This is where this overtime deduction comes from, as does 1099 and W-2 reporting. The IRS uses a different test for worker classification called the three-factor test.

This is where potential 1099 reporting comes into play. It is possible to 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 in the eyes of the IRS. That employee for DOL purposes might be eligible for overtime under FLSA. But that same person, being a contractor for IRS purposes, won’t get a W-2 — they get a 1099.

You could “have a worker who is classified one way for one agency and another way for another agency. This is not likely for average organizations in average circumstances, but it could happen.

The other area where it would be much more common to have a dual classification is with Section 530 relief. This relief impacts IRS worker classification. In brief, the law prohibits the IRS from reclassifying a contractor to an employee for federal tax purposes if the organization qualifies for the relief. This holds only for federal tax purposes. This would be a much more common spot for paying overtime to an employee for DOL purposes but reporting it on a 1099. If you’ve ever had an IRS audit where you’ve received Section 530 relief, consult appropriate counsel on this matter.

Tips

Tip reporting would be more common. For OBBBA deduction purposes, a qualifying tip is one that is:

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.

Those who want to find the complete list of 71 industries, as determined by the Treasury Department, can journey deep into the regulations here.

To help illustrate this, let’s look at examples.

That Guy is a self-employed photographer. You hire him to take photos of your company retreat. You pay him $3,000 for his services. You are so impressed with his professionalism and the quality of his work that you add $750 as a tip. Total amount paid is $3,750.

Private event photographer is one of the industries where tipping is customary — assigned code 503 by the Treasury Department. Your reporting obligation depends on how you paid him.

If you pay by ACH or check, then you’ll show the following on the 1099:

If you pay him with a credit card, then you have no reporting obligation at all, because the 1099-K rules apply.

In addition, if you pay a tip to a contractor who is not engaged in a business where tipping is customary, you have no special reporting obligation, either.

In future posts, we will explore the question, “How do you know what industry your contractor is working in?”