Cordasco & Company

The new law includes a game-changer for business payment reporting

The One, Big Beautiful Bill Act (OBBBA) contains a major overhaul to an outdated IRS requirement. Beginning with payments made in 2026, the new law raises the threshold for information reporting on certain business payments from $600 to $2,000. Beginning in 2027, the threshold amount will be adjusted for inflation.

The current requirement: $600 threshold

For decades, the IRS has required that businesses file Form 1099-NEC (previously 1099-MISC) for payments made to independent contractors that exceed $600 in a calendar year. This threshold amount has remained unchanged since the 1950s!

The same $600 threshold is in place for Forms 1099-MISC, which businesses file for several types of payments, including prizes, rents and payments to attorneys.

Certain deadlines must be met. A Form 1099-NEC must be filed with the IRS by January 31 of the year following the year in which a payment was made. A copy must be sent to the recipient by the same January 31 deadline.

A Form 1099-MISC must also be provided to a recipient by January 31 of the year following a payment, but unlike Form 1099-NEC, the 1099-MISC deadline for the IRS depends on how it’s submitted. If a business is filing the form on paper, the deadline is February 28. If the form is being submitted electronically, the deadline is March 31.

The new rules raise the bar to $2,000

Under the OBBBA, the threshold increases to $2,000, meaning:

Fewer 1099s will need to be issued and filed.
There will be reduced paperwork and administrative overhead for small businesses.
There will be better alignment with inflation and modern economic realities.

For example, let’s say your business engaged a freelance graphic designer and pays the individual $650 this year. You’ll need to send a 1099-NEC to the designer for calendar year 2025. But if you hire the same individual in 2026, you won’t be required to send a 1099 to the graphic designer or the IRS in 2027 unless the designer earns more than $2,000.

The money is still taxable income

Even if an independent contractor doesn’t receive a 1099-NEC because the amount paid was below the threshold amount, the payment(s) are still considered part of the individual’s gross income. The contractor must report all business income received on his or her tax return, unless an exclusion applies.

In addition, businesses must continue to maintain accurate records of all payments.

There are changes to Form 1099-K, too

The OBBBA also reinstates a higher threshold for Forms 1099-K, used by third-party payment processors. The reporting threshold returns to $20,000 and 200 transactions, rolling back the phased-in lower thresholds that had dropped toward $600 by 2026. This rollback undoes changes from the 2021 American Rescue Plan Act and earlier IRS delay plans.

Simplicity and relief

Raising the threshold will ease the filing burden for millions of businesses, especially small operations that rely on contractors. There will also be less risk that an IRS penalty will be imposed for failing to file a Form 1099 when required. Contact us with any questions about the new rules or your filing requirements.

A quiet trust has its benefits, but an incentive trust may be a better option

When it comes to estate planning, one of the more nuanced tools available is a quiet trust (also known as a “silent” trust). Unlike a traditional trust, a quiet trust keeps beneficiaries — often children or young adults — in the dark about its existence or details until they reach a certain age or milestone.

Many states permit quiet trusts, but these trusts have both positives and negatives. Depending on the situation, an incentive trust may be a better way to achieve your goals.

The pros

One of the biggest benefits of using a quiet trust is that it helps preserve ambition and independence. If your heirs know too early about a significant inheritance, they may lose motivation to pursue educational goals or build a career. By keeping the details private, you give them the chance to grow independently.

Quiet trusts can also reduce family conflict during your lifetime, especially if distributions are unequal or come with specific conditions. In addition, secrecy offers protection from outside pressures — such as creditors, estranged spouses or opportunistic friends — and allows time for heirs to develop the maturity needed to manage wealth responsibly.

The cons

Quiet trusts aren’t without drawbacks. Some beneficiaries may feel resentful when they eventually discover that assets were withheld from them. This secrecy can also increase the risk of legal challenges once the trust is revealed.

By keeping heirs uninformed, you also may unintentionally deprive them of valuable opportunities. For example, they might forego graduate school because they don’t want to take on student loan debt that could take decades to pay back when, in fact, the trust would eventually allow them to pay off the loan more quickly. (Or current access to the money could allow them to avoid student loan debt altogether.) And because trustees must administer the trust without beneficiary input, their decisions could later be questioned, adding tension at an already difficult time.

Another option

The idea behind a quiet trust is to avoid disincentives to responsible behavior. But it’s not clear that such a trust will actually accomplish that goal. A different approach is to design a trust that provides incentives for responsible behavior.

For example, an incentive trust might condition distributions on behavior you wish to encourage, such as obtaining a college or graduate degree, maintaining gainful employment, or pursuing worthy volunteer activities. Or it could require getting treatment for alcohol or substance abuse and maintaining a sober lifestyle.

One drawback to setting specific goals is that it may penalize a beneficiary who chooses a different, but responsible, life choice — a stay-at-home parent, for example. To build some flexibility into the trust, you might establish general principles for distributing trust funds to beneficiaries who behave responsibly but give the trustee broad discretion to apply these principles on a case-by-case basis.

Finding the right balance

A quiet trust can be a powerful way to encourage independence and protect your heirs, but it requires careful planning. Many families find success in combining secrecy with a gradual disclosure strategy — sharing information at key milestones or leaving behind a written explanation to reduce confusion and conflict.

Every family is different, and the decision to use a quiet trust or an incentive trust should be based on your goals, values and relationships. We can help you weigh the pros and cons and structure your plan in a way that best protects your family and your legacy.

How the Social Security wage base will affect your payroll taxes in 2026

The 2026 Social Security wage base has been released. What’s the tax impact on employees and the self-employed? Let’s take a look.

FICA tax 101

The Federal Insurance Contributions Act (FICA) imposes two payroll taxes on wages and self-employment income — one for Old-Age, Survivors, and Disability Insurance, commonly known as the Social Security tax, and the other for Hospital Insurance, commonly known as the Medicare tax.

The FICA tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. If you’re an employee, FICA tax is split evenly between your employer and you. If you’re self-employed, you pay the full 15.3% — but the “employer” half is deductible.

All wages and self-employment income are generally subject to Medicare tax. But the Social Security tax applies to such income only up to the Social Security wage base. The Social Security Administration has announced that the wage base will be $184,500 for 2026 (up from $176,100 for 2025). Wages and self-employment income above this threshold aren’t subject to Social Security tax.

Another payroll tax that higher-income taxpayers must be aware of is the additional 0.9% Medicare tax. It applies to FICA wages and self-employment income exceeding $200,000 ($250,000 for joint filers and $125,000 for separate filers). There’s no employer portion for this tax, but employers are required to withhold it once they pay an employee wages for the year exceeding $200,000 — regardless of the employee’s filing status. (You can claim a credit on your income tax return for withholding in excess of your actual additional Medicare tax liability.)

What will you owe in 2026?

For 2026, if you’re an employee, you’ll owe:

6.2% Social Security tax on the first $184,500 of wages, for a maximum tax of $11,439 (6.2% × $184,500), plus
1.45% Medicare tax on wages up to the applicable additional Medicare tax threshold, plus
2.35% Medicare tax (1.45% regular Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of the applicable additional Medicare tax threshold.

For 2026, if you’re self-employed, you’ll owe:

12.4% Social Security tax on the first $184,500 of self-employment income (half of which will be deductible), for a maximum tax of $22,878 (12.4% × $184,500), plus
2.9% Medicare tax on self-employment income up to the applicable additional Medicare tax threshold (half of which will be deductible), plus
3.8% Medicare tax (2.9% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of the applicable additional Medicare tax threshold. (Half of the 2.9% portion will be deductible; none of the 0.9% portion will be deductible.)

The payroll tax deduction for the self-employed can be especially beneficial because it reduces adjusted gross income (AGI) and modified adjusted gross income (MAGI). AGI and MAGI can trigger certain additional taxes and the phaseouts of many tax breaks.

Have questions?

Payroll taxes get more complicated in some situations. For example, what if you have two jobs? Payroll taxes will be withheld by both employers. Can you ask your employers to stop withholding Social Security tax once, on a combined basis, you’ve reached the wage base threshold? No, each employer must continue to withhold Social Security tax until your wages with that employer exceed the wage base. Fortunately, when you file your income tax return, you’ll get a credit for any excess withheld.

If you have more questions about payroll taxes, such as what happens if you have wages from a job and self-employment income, please contact us. We can help you ensure you’re complying with tax law while not overpaying.

Understanding the most common IRS notices

For many taxpayers, receiving a letter from the IRS can feel intimidating. The envelope arrives with the IRS seal, and immediately, worry sets in: Did I make a mistake? Am I in trouble? The truth is, IRS notices aren’t uncommon, and most of them can be resolved fairly easily once you understand what they mean.

This article walks through the most common types of IRS notices, explains why taxpayers receive them, and provides guidance on how to respond.

Why the IRS sends notices

The IRS communicates primarily by mail — not phone or email. Notices are typically sent for reasons such as:

Clarifying information on a tax return,
Notifying you of a balance due,
Confirming changes made to your return,
Requesting additional documentation, and
Alerting you to a possible error.

Each notice is numbered in the upper right-hand corner (for example, CP2000 or Notice CP12). That code is your key to understanding the purpose of the letter. In all cases, contact us if you have questions about how to proceed.

Five common notices and what they mean

1. CP2000, proposed changes to your tax return. This notice is issued when the IRS finds a mismatch between the information you reported and what third parties (like employers or banks) reported. For example, if your W-2 shows more wages than what you entered, the IRS will propose a correction.

How to respond: Review the notice carefully. If the IRS is correct, you can agree and pay any additional tax owed. If you disagree, you have the right to dispute it by providing supporting documentation.

2. CP12, refund adjustment. If the IRS corrects a math error or other mistake on your return, you may receive this notice. Sometimes, it will result in a smaller or larger refund than you expected.

How to respond: If you agree with the correction, no action is needed. If not, you can request a reversal by contacting the IRS within 60 days of the date of the notice.

3. CP14, balance due. This is the most common notice. It informs a taxpayer that he or she owes additional tax. It will list the amount due, including penalties and interest.

How to respond: Don’t ignore it. Pay the balance in full, set up a payment plan or contact the IRS if you believe the notice is incorrect.

4. Letter 4883C, identity verification. When the IRS suspects identity theft, it sends this letter asking you to verify your identity before processing your return.

How to respond: Follow the instructions immediately — usually by calling the IRS or verifying online. Delaying could stall your refund.

5. CP49, refund applied to a debt. A taxpayer will receive this notice if he or she was expecting a refund, but instead had it applied to past-due federal taxes or other debts (like child support or student loans).

How to respond: The notice will explain how the refund was applied. If you disagree, you may need to contact the agency that received the payment, not the IRS.

Steps to take

In addition to the response steps listed above, here are six more tips:

Don’t panic. Notices are often routine and resolvable.
Read carefully. The notice will explain the issue, next steps and deadlines.
Check the notice number. This will help you look up details online or discuss the matter with us.
Verify accuracy. Compare the notice to your tax return and records.
Respond promptly. Many notices have deadlines for disputing or appealing.
Avoid scams. The IRS will never email, text or call demanding payment. Legitimate notices always come by mail.

Ways we can help

Interpreting an IRS notice may be tricky, especially if it involves complex calculations or disputed information. We can review the notice for accuracy and explain what it means in plain language. In addition, we can communicate with the IRS on your behalf, help you gather documentation, file corrections and guide you through payment plans or appeals if needed. With professional guidance, most IRS issues can be resolved without stress or confusion.

New information return and payroll tax reporting rules require attention

The One Big Beautiful Bill Act (OBBBA) introduced or updated numerous business-related tax provisions. The changes that are likely to have a major impact on employers and payroll management companies include new information return and payroll tax reporting rules. Let’s take a closer look at what’s new beginning in 2026 — and what businesses need to do in 2025.

Increased reporting thresholds go into effect in 2026

Businesses generally must report payments made during the year that equal or exceed the reporting threshold for rents; salaries; wages; premiums; annuities; compensation; remuneration; emoluments; and other fixed or determinable gains, profits and income. Similarly, recipients of business services generally must report payments they made during the year for services rendered that equal or exceed the statutory threshold. This information is reported on information returns, including Forms W-2, Forms 1099-MISC and Forms 1099-NEC.

Currently, the reporting threshold amount is $600. For payments made after 2025, the OBBBA increases the threshold to $2,000, with inflation adjustments for payments made after 2026.

Reporting qualified tip income and qualified overtime income

Effective for 2025 through 2028, the OBBBA establishes new deductions for employees who receive qualified tip income and qualified overtime income. Because these are deductions as opposed to income exclusions, federal payroll taxes still apply to this income. So do federal income tax withholding rules. Also, tip income and overtime income may still be fully taxable for state and local income tax purposes.

The issue for employers and payroll management companies is reporting qualified tip and overtime income amounts so that eligible workers can claim their rightful federal income tax deductions. In August, the IRS announced that for 2025 there will be no OBBBA-related changes to federal information returns for individuals, federal payroll tax returns or federal income tax withholding tables. The 2025 versions of Form W-2, Forms 1099, Form 941, and other payroll-related forms and returns will be unchanged.

Nevertheless, employers and payroll management companies should begin tracking qualified tip and overtime income immediately and implement procedures to retroactively track qualified tip and overtime income amounts that were paid going back to January 1, 2025. The IRS will provide transition relief for 2025 to ease compliance burdens.

Proposed regulations list tip-receiving occupations

In September, the IRS released proposed regs that include a list of tip-receiving occupations eligible for the OBBBA deduction for qualified tip income. Eligible occupations are grouped into eight categories:

Beverage and food services,
Entertainment and events,
Hospitality and guest services,
Home services,
Personal services,
Personal appearance and wellness,
Recreation and instruction, and
Transportation and delivery.

The IRS added three-digit codes to each eligible occupation for information return purposes.

2026 Form W-2 draft version

The IRS has released a draft version of the 2026 Form W-2. It includes changes that support new employer reporting requirements for the employee deductions for qualified tip income and qualified overtime income and for employer contributions to Trump Accounts, which will become available in 2026 under the OBBBA.

Specifically, Box 12 of the draft version adds:

Code TA to report employer contributions to Trump Accounts,
Code TP to report the total amount of an employee’s qualified cash tip income, and
Code TT to report the total amount of an employee’s qualified overtime income.

Box 14b has been added to allow employers to report the occupation of employees who receive qualified tip income.

Stay on top of the latest guidance

The OBBBA makes some significant changes affecting information returns and payroll tax reporting. The IRS will likely continue to issue guidance and regulations. We can help you stay informed on any developments that will affect your business’s reporting requirements.

Cordasco & Company

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