The IRS added three new boxes to Forms 1099-MISC and 1099-NEC for tax year 2026. Businesses will see them for the first time when they file in the 2027 season. These boxes report cash tips, a Treasury Tipped Occupation Code, and qualified overtime compensation. If your business pays nonemployee workers who earn tips or receive overtime-type premium pay, you now need to track and report those amounts separately. This lets your contractors claim the new “no tax on tips” and “no tax on overtime” deductions on their personal returns.
Key Takeaway: Starting with 2026 payments filed in 2027, Form 1099-NEC gets new boxes 1b, 1c, and 1d. Form 1099-MISC gets new boxes 13a, 13b, and 14. These boxes separately report cash tips, tipped occupation codes, and qualified overtime pay. Businesses that pay independent contractors in tipped or overtime-style roles must start tracking these amounts now to file correctly next season.
What It Is
These new boxes exist because of the One Big Beautiful Bill Act. This law created temporary federal deductions for tip income and overtime pay. Workers who receive qualified tips can deduct up to $25,000 of that income. Workers who earn qualified overtime can deduct up to $12,500, or $25,000 for joint filers. Both deductions phase out for taxpayers with modified adjusted gross income above $150,000, or $300,000 for joint filers. To claim these deductions, a worker needs an information return, like a 1099-NEC or 1099-MISC, that clearly shows the tip or overtime amount.
The IRS responded by redesigning both forms. On Form 1099-NEC, the old Box 1 for nonemployee compensation becomes Box 1a. New Box 1b reports cash tips. Box 1c, also new, reports the Treasury Tipped Occupation Code. New Box 1d reports qualified overtime compensation. On Form 1099-MISC, the same information appears in new Box 13a for cash tips, Box 13b for the Treasury Tipped Occupation Code, and Box 14 for overtime compensation. The IRS explains these changes directly in its updated instructions for Forms 1099-MISC and 1099-NEC.
Who It Applies To
This change applies to businesses that pay independent contractors in occupations where tipping is customary. Think delivery drivers, salon workers, or event staff paid as 1099 contractors instead of employees. It also applies to businesses that pay nonemployees an overtime-style premium for hours worked beyond a standard schedule. This second scenario is less common, but it does happen in certain freelance and gig arrangements where a client agrees to pay extra for rushed or after-hours work.
Most small businesses will not need to touch these new boxes at all. If you only pay contractors a flat fee or hourly rate, with no tip component and no overtime premium, you simply leave the new boxes blank. You continue reporting total compensation in Box 1a as usual. The new boxes only matter when tips or a distinct overtime premium are actually part of the payment structure.
Requirements
If your business pays a contractor cash tips, report the tip total in Box 1b of Form 1099-NEC or Box 13a of Form 1099-MISC. You also need to assign a Treasury Tipped Occupation Code that matches the contractor’s tipped occupation. That code goes in Box 1c or Box 13b. The IRS published a list of qualifying occupation codes. Match the contractor’s actual work to the correct code rather than guessing, since an incorrect code can delay the contractor’s deduction.
For overtime, report the qualified overtime compensation amount in Box 1d of Form 1099-NEC or Box 14 of Form 1099-MISC. Only the premium portion of overtime pay qualifies for the deduction, not the full amount paid for those hours. Your payroll or accounts payable system needs to separate base pay, tips, and overtime premiums before you generate 1099s for the 2026 tax year. Waiting until January 2027 to sort this out will slow down your entire filing process. If you need a refresher on how Form 1099-MISC works overall, see our guide on what Form 1099-MISC is and when you’re required to file it.
Common Mistakes
Many businesses will lump tips and overtime into the general compensation box out of habit. This shortchanges contractors who are counting on those separate figures to claim their deductions. Others may report a tip amount but skip the Treasury Tipped Occupation Code, leaving Box 1c or 13b blank when it should be filled in. Both errors mean your contractors cannot properly claim the deduction on their own tax returns, which can create frustration and extra questions during filing season.
Another mistake is assuming every payment above the standard rate counts as overtime. The IRS deduction only covers the specific premium portion tied to hours worked past a standard threshold. It does not cover bonuses or performance pay. Businesses also sometimes forget that these new boxes require an updated form version. Older 1099 templates saved from prior years will not include the new fields at all, so double-check your software before you start filing.
Best Practices
Start tracking tips and overtime premiums separately in your bookkeeping system now. Do not wait until next January to try to reconstruct the numbers from memory or scattered invoices. Review every contractor’s pay structure before the 2026 tax year closes and flag anyone who receives tips or an overtime-style premium. Confirm the correct Treasury Tipped Occupation Code for each tipped contractor well ahead of filing season, since matching codes correctly takes some research the first time around.
Communicate with your contractors about these changes too. Many independent workers have never seen a 1099 with tip or overtime boxes. Clear communication now prevents confused questions during filing season, when your time is already stretched thin. Finally, confirm that whatever software or filing service you use for 2026 forms has already been updated to support the new boxes. Not every provider updated their systems at the same pace, and using an outdated template could mean redoing your filings later.
How WageFiling Helps
WageFiling keeps its 1099-NEC and 1099-MISC templates current with every IRS form revision, including the new tip and overtime boxes for tax year 2026. When you prepare 2026 forms through WageFiling, you will see the updated fields for cash tips, Treasury Tipped Occupation Codes, and qualified overtime compensation built directly into the filing workflow. You do not need to track down a new template or worry about outdated software falling behind IRS changes.
WageFiling also validates entries before submission. This catches common errors, like a tip amount entered without a matching occupation code, before the form ever reaches the IRS. This gives your business one less thing to worry about heading into the busy January filing window. It also gives your contractors accurate forms they can actually use to claim the deductions they are entitled to under the new law.
Conclusion
The new tip and overtime boxes on Forms 1099-NEC and 1099-MISC represent a real shift in how businesses report payments to certain contractors. The change lands right in the middle of the 2027 filing season, so there is little room to figure things out on the fly. Businesses that pay tipped or overtime-style contractors should update their recordkeeping now. Confirm the right Treasury Tipped Occupation Codes for each worker, and choose filing software that already supports the new fields. A little preparation this year prevents a scramble next January. It also helps your contractors claim the deductions Congress designed these boxes to support.
Frequently Asked Questions
Do I need to report tips for every 1099 contractor I pay?
No, you only need to fill in the new tip boxes if your business actually pays cash tips to a contractor as part of their compensation. If a contractor’s payments contain no tip component, leave Box 1b, or Box 13a on Form 1099-MISC, blank. Report the full payment in the standard compensation box instead.
What is a Treasury Tipped Occupation Code and where do I find one?
A Treasury Tipped Occupation Code is a number the IRS assigns to specific tipped occupations, such as food service or personal care roles, to identify which jobs qualify for the no tax on tips deduction. The IRS instructions for Forms 1099-MISC and 1099-NEC list the codes. Match each tipped contractor to the code that best fits their actual work.
Does the overtime box apply if I pay a contractor a flat project fee?
No, the overtime box only applies when a business pays a distinct overtime premium tied to hours worked beyond a standard schedule. A flat project fee has no separate overtime component. Report the full amount as regular nonemployee compensation and leave the overtime box blank.
Disclaimer: This article is for informational purposes only and should not be considered tax, legal, or accounting advice. Consult a qualified tax professional regarding your specific situation.
