New IRS Basis Reporting Rules — What CFOs and Controllers Need to Know Now

The One Big Beautiful Budget Act (OBBBA) introduced a set of changes to federal tax reporting that have been overshadowed by other headline provisions — but for CFOs, controllers, and finance teams managing payroll, vendor payments, and equity activity, these updates require attention before year-end.

The changes affect how and when certain payments must be reported to the IRS, who bears the reporting obligation, and how basis is tracked for investment and equity transactions. Here is what you need to know and what to do about it now.

The 1099 Threshold Is Rising — But That Doesn't Mean Less Risk

The most widely discussed OBBBA change is the increase in the 1099-NEC and 1099-MISC reporting threshold. Beginning for payments made in 2026, the threshold rises from $600 to $2,000. Starting in 2028, this threshold will be indexed for inflation.

On the surface, this looks like a straightforward compliance reduction — and in many cases, it is. Businesses will issue fewer 1099s for small-dollar contractors and vendors, reducing administrative burden and the associated filing costs.

But there are critical nuances finance teams must understand:

Income remains fully taxable regardless of threshold. The absence of a 1099 does not relieve the recipient of any obligation to report their income. This distinction matters when managing vendor relationships — contractors who receive payments below $2,000 may not receive a form, but they are still required to self-report. Some vendors may not understand this and may need communication from your accounts payable team.

Audit risk shifts upward for larger payments. Because fewer 1099s are issued for small amounts, the IRS will treat forms issued at or above the $2,000 threshold with greater scrutiny. When a 1099-NEC or 1099-MISC is issued, proper documentation — accurate vendor information, W-9s on file, consistent classification — becomes more important, not less.

State conformity is not guaranteed. Several states have not conformed to the federal $2,000 threshold and will continue to require 1099 reporting at the legacy $600 level. Multistate businesses need a jurisdiction-by-jurisdiction review before adjusting their reporting workflows.

New Reporting Formats for Tips and Overtime

The OBBBA also contemplates new reporting requirements for "qualified tips" and overtime pay. While final IRS forms and instructions have not yet been released for tax year 2026, the law signals that payroll systems will need to accommodate distinct line-item reporting for these categories — separate from standard wages on Form W-2.

What this means for your payroll team:

Finance and HR leaders should work with their payroll providers now to confirm that:

- Qualified tips are tracked and coded separately in the payroll system

- Overtime pay is clearly distinguished from base wages in your general ledger and payroll exports

- Year-end W-2 production processes are updated to reflect any new line reporting requirements when IRS guidance is finalized

For tax year 2025, the OBBBA makes no changes to existing W-2 forms, 1099s, or Form 941 reporting. The changes take effect beginning with 2026 payroll and payment activity.

Equity and Stock Compensation: Basis Tracking Under the Microscope

For companies that issue equity to employees, founders, or investors — or that have experienced secondary sales, tender offers, or option exercises — the OBBBA's changes to broker basis reporting have downstream implications for your internal recordkeeping.

The rules expand broker obligations to report cost basis accurately and promptly on covered transactions. For issuers, this means your equity management platform and your cap table must be configured to reflect:

- Accurate grant dates and exercise prices for all outstanding options and warrants

- Vesting schedules and acceleration provisions that could trigger reporting events

- Transfer and secondary transaction history, including any informal transfers that should have generated documentation

When brokers and transfer agents report basis to the IRS, those figures will increasingly be cross-referenced against employee and investor tax returns. Discrepancies — even inadvertent ones — create audit risk for both the company and the individuals involved.

CFO checklist for equity compliance under the new rules:

1. Confirm your equity management platform (Carta, Pulley, or equivalent) has been updated to reflect current IRS basis reporting guidance.

2. Verify that all W-9s and investor/employee tax information is current and on file.

3. Review your process for issuing 1099-B or equivalent documentation for option exercises, RSU vesting events, and secondary transactions.

4. Coordinate with your legal counsel on whether any informal equity transfers need to be documented retroactively.

System Updates: Not Optional, and Not Simple

One of the most consistent themes across the OBBBA's reporting changes is that they require system updates — across payroll, accounts payable, general ledger, and vendor management.

For many mid-market companies, these systems are not integrated, and a change in one does not automatically propagate to others. The $2,000 threshold change, for example, needs to be reflected in:

- Accounts payable systems that trigger 1099 generation based on payment thresholds

- Vendor master files where accumulated payment totals are tracked by calendar year

- General ledger coding that maps payments to 1099-reportable vs. non-reportable categories

- Payroll platforms for the tips and overtime reporting changes

Companies that rely on manual processes or spreadsheets to produce year-end 1099s are particularly exposed. The combination of a higher federal threshold, non-conforming state rules, and new payroll reporting categories creates significant potential for errors that will only surface — painfully — during filing season.

What Agility Recommends

For CEOs and CFOs, the OBBBA reporting changes are not transformational in isolation, but they compound quickly if your finance infrastructure is not aligned.

Here is our recommended approach for the balance of 2026:

Now (Q2 2026): Conduct a system audit. Identify which platforms need threshold updates and whether your payroll provider has issued guidance on tips and overtime reporting. Pull a list of 2026 vendors to date and identify which payments are approaching the new threshold.

Q3 2026: Update vendor master files and AP workflows to reflect the new $2,000 threshold. Confirm state-specific 1099 obligations for all jurisdictions where you have operations or vendors. Review equity platform settings with your CFO advisor or controller.

Q4 2026: Run a test of your year-end 1099 production process before the actual filing deadline crunch. Identify any vendors where W-9 information is missing or stale. Confirm your payroll year-end reporting process incorporates any new IRS guidance on tips and overtime that has been issued by then.

Agility Financial Partners works alongside growing companies as a fractional controller or CFO advisory resource, including helping finance teams build the compliance infrastructure to handle these kinds of regulatory changes efficiently. If your team is resource-constrained heading into year-end, we are happy to help.

*This article is for informational purposes only and does not constitute legal or tax advice. Consult qualified counsel before making tax filing decisions.*