Business Entities and Considerations · Business entities

Reporting requirements (e.g. Forms W2, W-4, Form 1099)

Information reporting is the part of business tax practice where the rules changed most recently and where the profession’s memory is most stubborn. Two thresholds moved in 2025 and both first operate for the 2026 calendar year: the general information-at-source threshold went up, and the third party network threshold went back to where it had been before 2021. Almost every checklist, software default and training note written before July 2025 has at least one of them wrong, and the two errors run in opposite directions — one causes over-reporting, the other under-reporting.

The rule

Information at source. $2,000 — every person engaged in a trade or business who pays another person rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments or other fixed or determinable gains, profits and income of that amount or more in a calendar year must render a return to the Secretary. The figure was $600 until Pub. L. 119-21 § 70433(a) substituted $2,000 for payments made after 31 December 2025, and IRC § 6041(h) indexes it for calendar years after 2026 in multiples of $100 (IRC § 6041(a), (h))^TY2026Verified 2026-08-21IRC § 6041(a), (h) and the 2025 amendment notes, read at law.cornell.edu/uscode/text/26/6041

Nonemployee compensation. a service-recipient engaged in a trade or business that pays remuneration for services in a calendar year must make a return where the aggregate paid to that person equals or exceeds the dollar amount in effect for that year under IRC § 6041(a) — the cross-reference substituted by Pub. L. 119-21 § 70433(c) for the former fixed $600, so the two thresholds now move together (IRC § 6041A(a))^TY2026Verified 2026-08-21IRC § 6041A(a) and the 2025 amendment notes, read at law.cornell.edu/uscode/text/26/6041A

Direct sales for resale. $5,000 — a person who sells consumer products to a buyer on a buy-sell, deposit-commission or similar basis for resale other than in a permanent retail establishment must make a return where the aggregate sales to that buyer in the calendar year are that amount or more (IRC § 6041A(b))^TY2026Verified 2026-08-21IRC § 6041A(b), read at law.cornell.edu/uscode/text/26/6041A

Third party network transactions. a third party settlement organisation must report a participating payee third party network transactions only if the amount otherwise reportable exceeds $20,000 and the aggregate number of transactions exceeds 200. Pub. L. 119-21 § 70432(a) restored both tests and did so as if included in the 2021 Act that had replaced them with a flat $600 and no transaction count, so the $600 rule is treated as never having taken effect (IRC § 6050W(e))^TY2026Verified 2026-08-21IRC § 6050W(e) and the 2025 amendment and effective-date notes, read at law.cornell.edu/uscode/text/26/6050W

Statements to employees. every person required to withhold under IRC § 3101 or § 3402, and every employer engaged in a trade or business who pays remuneration for services performed by an employee, must furnish each employee a written statement for the calendar year on or before 31 January of the succeeding year — or, where employment ends before the close of the year, within 30 days after a written request from the employee if that 30-day period ends before 31 January (IRC § 6051(a))^TY2026Verified 2026-08-21IRC § 6051(a), read at law.cornell.edu/uscode/text/26/6051

When each is filed. Forms W-2 and W-3 and any return or statement reporting nonemployee compensation are filed on or before 31 January of the year following the calendar year to which they relate; other information returns under subpart B, when filed electronically, are filed on or before 31 March (IRC § 6071(b), (c))^TY2026Verified 2026-08-21IRC § 6071(b), (c), read at law.cornell.edu/uscode/text/26/6071

When it must be electronic. no person is required to file information returns electronically for a calendar year unless required to file at least 10 returns during that year, counted in aggregate across return types; a partnership with more than 100 partners must file electronically regardless (Reg. § 301.6011-2(c))^TY2026Verified 2026-08-2126 CFR § 301.6011-2(c), read at law.cornell.edu/cfr/text/26/301.6011-2

Cash received in a trade or business. $10,000 — any person engaged in a trade or business who in the course of it receives more than that amount in cash in one transaction, or in two or more related transactions, must make a return showing the name, address and taxpayer identification number of the person from whom the cash was received, the amount, and the date and nature of the transaction (IRC § 6050I(a), (b))^TY2026Verified 2026-08-21IRC § 6050I(a), (b), read at law.cornell.edu/uscode/text/26/6050I

And when that one is due. the report must be filed by the 15th day after the date the cash is received (Reg. § 1.6050I-1(e)(1)); the written statement to each person named on it, showing the filer information contact and the aggregate amount of cash received, must be furnished on or before 31 January of the year following the calendar year for which the return was required (IRC § 6050I(e))^TY2026Verified 2026-08-2126 CFR § 1.6050I-1(e)(1), read at law.cornell.edu/cfr/text/26/1.6050I-1; IRC § 6050I(e), read at law.cornell.edu/uscode/text/26/6050I

The withholding certificate. An employee receiving wages is entitled to a withholding allowance determined on the facts the statute lists — whether a deduction is allowable to another taxpayer for the employee, the position of a spouse, the individuals for whom the child credit may reasonably be expected to be allowable, and the employee’s estimated deductions and additional income (IRC § 3402(f)(1)). Form W-4 is how the employee reports those facts, and the employer withholds on what the certificate says.

Failure to file the return. for a failure relating to a return required to be filed in 2027, the penalty is $340 per return with a calendar year maximum of $4,191,500 — or $1,397,000 for a person whose average annual gross receipts for the most recent three taxable years are $5,000,000 or less. Corrected within 30 days of the required filing date the penalty is $60, capped at $698,500 or $244,500; corrected after that but on or before 1 August it is $130, capped at $2,095,500 or $698,500 (IRC § 6721(a), (b), (d))^TY2026Verified 2026-08-21Rev. Proc. 2025-32, read at irs.gov/pub/irs-drop/rp-25-32.pdf § 3.57

Failure to furnish the statement. for a failure relating to a payee statement required to be furnished in 2027, the penalty is $340 per statement with a calendar year maximum of $4,191,500 — or $1,397,000 for a person whose average annual gross receipts for the most recent three taxable years are $5,000,000 or less. Corrected within 30 days of the required furnishing date the penalty is $60, capped at $698,500 or $244,500; corrected after that but on or before 1 August it is $130, capped at $2,095,500 or $698,500 (IRC § 6722(a), (b), (d))^TY2026Verified 2026-08-21Rev. Proc. 2025-32, read at irs.gov/pub/irs-drop/rp-25-32.pdf § 3.58

Intentional disregard. for intentional disregard of the filing requirement, the penalty for a return required to be filed in 2027 is the greater of $690 or 10 percent of the aggregate amount required to be reported correctly, with no calendar year limit — 5 percent for a return under IRC § 6045(a), § 6050K or § 6050L. For a Form 8300 return under IRC § 6050I(a) it is the greater of $34,930 or the amount of cash received, up to $139,500 (IRC § 6721(e)(2))^TY2026Verified 2026-08-21Rev. Proc. 2025-32, read at irs.gov/pub/irs-drop/rp-25-32.pdf § 3.57

Current figures

How it works in practice

The information-at-source threshold is the one to get right first, because it governs the largest number of forms. It applies to a payment made in the course of a trade or business, which is what keeps personal payments out of it, and it applies to fixed or determinable income generally rather than to a list of specified payments. Rent to a landlord, fees to a professional, prizes and awards, and payments to an attorney all fall inside it. Payments to a corporation are, by long-standing regulation, generally outside it — with the well-known exception for legal fees.

The threshold is now a moving figure rather than a fixed one, which changes how it must be handled in practice. It is indexed for calendar years after 2026 and rounded, so a firm cannot hard-code it in a checklist the way it hard-coded the old amount for decades. The cross-reference in IRC § 6041A(a) is worth noticing for the same reason: nonemployee compensation no longer has its own figure at all, but tracks whatever IRC § 6041(a) says for the year, so the two move in lockstep and neither needs to be remembered separately.

The third party network story is different in kind, and it is the one most likely to appear as a trap. The 2021 Act had replaced the long-standing dual test with a flat threshold and no transaction count, a change whose start date was repeatedly postponed by administrative action so that it never actually governed a full filing season. In 2025 Congress restored the dual test as if included in the 2021 provision, which means the flat threshold is treated as never having taken effect at all. Both limbs must now be exceeded: the amount and the transaction count. A payee with a large dollar volume across a handful of transactions is not reportable, and neither is one with hundreds of small transactions.

Note that this affects the organisation’s reporting obligation and nothing else. Income is taxable whether or not a Form 1099-K arrives, and the restoration of the higher threshold does not make anything non-taxable. It changes who receives a form, not who owes tax — which is exactly the point a client hears backwards.

The electronic filing threshold catches more businesses than practitioners expect because it aggregates across return types. Ten returns in total, counting Forms W-2, the 1099 series, employment tax returns and excise returns together. A business with eight employees and three contractors is over it.

On Form 8300, hold two dates apart. The return goes to the Service by the fifteenth day after the cash is received — days, not months, and counted from receipt rather than from the end of any period. The written statement to each person named goes out by 31 January of the following year. Nothing about the two deadlines is parallel, and confusing them is the standard error.

The penalty structure rewards speed with an unusual sharpness. The per-return amount for a correction made within 30 days is a fraction of the general figure, and the tier for a correction made by 1 August sits between the two. The reduced caps for a small business apply only to the general and tiered penalties; intentional disregard has no cap at all, and its Form 8300 tier is on a different scale from every other return.

Scenarios

How this has changed

Two changes made in July 2025 first operate for the 2026 calendar year, and they are the reason this topic needs rewriting rather than updating.

The information-at-source threshold in IRC § 6041(a) was raised by Pub. L. 119-21 § 70433(a) for payments made after 31 December 2025, its heading was rewritten from a fixed amount to “Payments exceeding threshold”, and a new IRC § 6041(h) indexes the figure for calendar years after 2026. The same Act substituted a cross-reference for the fixed amount in IRC § 6041A(a)(2), so nonemployee compensation follows it. The practical effect is that the number every practitioner has carried in their head for their whole career is now both different and moving.

The third party network threshold went the other way and did so retroactively. Pub. L. 119-21 § 70432(a) restored the dual amount-and-count test in IRC § 6050W(e), and § 70432(a)(2) provides that the amendment takes effect as if included in the 2021 provision that had replaced it. The flat threshold is therefore treated as never having been law. That is an unusual drafting move and it has a practical consequence worth stating: there is no transitional period to reason about, and no year in which the lower threshold correctly applied.

The electronic filing threshold is the older change of the three, but still recent enough to be mis-stated. It is now ten returns counted in aggregate across return types, replacing a much higher count applied per type. A business that filed on paper for years without difficulty may have been required to file electronically since 2024 without anyone noticing.

Exam focus

Expect threshold questions, and read the year in the question carefully — a question set in an earlier year takes the earlier figure. Where a question gives payments to several recipients and asks how many returns are required, apply the threshold recipient by recipient on the aggregate for the calendar year, and check whether any recipient is a corporation.

Form 8300 is a reliable source of questions because it has two deadlines and both are unusual: fifteen days from receipt for the return, 31 January of the following year for the payee statement. Expect one of them to be the answer and the other to be the distractor.

For penalties, the structure matters more than the amounts: a general figure, a lower one for correction within 30 days, a middle one for correction by 1 August, reduced annual caps for smaller businesses, and an uncapped tier for intentional disregard. A question that describes a deliberate failure is asking about the last of those.

Check yourself

1. A business pays a self-employed graphic designer $1,500 during calendar year 2026 for services. Is a Form 1099-NEC required?

Answer: no. IRC § 6041A(a)(2) requires the return where the aggregate remuneration for services equals or exceeds the dollar amount in effect for the calendar year under IRC § 6041(a), and for 2026 that amount is above $1,500. Under the pre-2026 threshold the answer would have been yes, which is why the year in the question decides it.

2. A third party settlement organisation processes $95,000 for a participating payee across 40 transactions in 2026. Must it file a Form 1099-K?

Answer: no. IRC § 6050W(e) as restored requires reporting only if both the amount exceeds the dollar threshold and the aggregate number of transactions exceeds 200. The amount is exceeded, the count is not, and both limbs must be satisfied. The payee’s income remains fully taxable.

3. A jeweller receives $15,000 in cash from a customer on 10 June 2026 in a single transaction. When must the Form 8300 be filed, and when must the customer receive a statement?

Answer: the return by 25 June 2026 — the fifteenth day after the cash is received, under Reg. § 1.6050I-1(e)(1) — and the written statement to the customer by 31 January 2027 under IRC § 6050I(e). The two deadlines are unrelated to each other and neither is derived from the other.

4. A business is required to file six Forms W-2 and five Forms 1099-NEC for the calendar year. Must it file them electronically?

Answer: yes. Reg. § 301.6011-2(c)(1) requires electronic filing where the person is required to file at least 10 returns during the calendar year, and the count aggregates across return types. Eleven returns in total exceed the threshold even though neither type alone reaches ten.

5. An employer deliberately fails to file 30 required information returns for 2026, having been advised that it must. What is the penalty exposure?

Answer: intentional disregard, at the greater of the per-return figure or 10 percent of the aggregate amount required to be reported correctly, with no calendar year limit (IRC § 6721(e)(2)). The tiered reductions for prompt correction and the annual caps — including the reduced caps for a small business — are all unavailable where the failure is intentional.